During 2013, MVC Operated as a C Corporation

question 63

Essay

During 2013, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2014. MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory. At the end of 2013 its inventory basis under the LIFO method was $63,000. If MVC had used the FIFO method of accounting for its inventory, it would have had a $70,000 basis in its inventory. Finally, MVC's regular taxable income in 2013 was $80,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

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Definitions:

Statement Of Income

A statement of income is a financial document that summarizes a company's revenues, expenses, and profits or losses over a specific time period.

Freight In

The cost associated with transporting goods into a business, included as part of the inventory cost.

Purchases Account

An account used in accounting to track all purchases of goods and materials that a business intends to resell.

Cost Of Goods Purchased

The total expense incurred by a company to buy the goods it has purchased for resale, including shipping and handling fees.