SEC Corporation Has Been Operating as a C Corporation Since

question 100

Essay

SEC Corporation has been operating as a C corporation since 2014.It elected to become an S corporation,effective January 1,2017.On December 31,2016,SEC reported a net unrealized built in gain of $10,000.In addition to other transactions in 2017,SEC sold inventory it owned at the beginning of 2017 (it did not sell any other assets it owned at the beginning of 2017).At the beginning of the year,the inventory it sold had a fair market value of $40,000 and a FIFO tax basis of $15,000.SEC sold the inventory for $28,000.If SEC had been a C corporation in 2017,its taxable income would have been $40,000.How much built-in gains tax must SEC pay in 2017?

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Definitions:

Diminishing Returns

A principle stating that the addition of more of one factor of production, holding all else constant, will at some point yield lower incremental per-unit returns.

Marginal Product

The additional output resulting from the use of one more unit of a variable input, holding other inputs constant.

Cookie Production

The process of baking cookies, which involves mixing ingredients according to a recipe, shaping, and then heating them in an oven until done.

Marginal Productivity

The additional output produced by employing one more unit of a specific factor of production, holding other factors constant.