Mock Corporation Converts to S Corporation Status in 2019

question 8

Multiple Choice

Mock Corporation converts to S corporation status in 2019. Mock used the LIFO inventory method in 2018 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2018 corporate tax liability, assuming that Mock is subject to a 21% tax rate.

• A) $0
• B) $6,038
• C) $24,150
• D) $115,000

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Definitions:

Variable Cost

A cost that varies with the level of output or sales, such as materials and labor costs.

Fixed Manufacturing Cost

Costs that do not change with the level of manufacturing activity, such as rent for a factory building or salaries of permanent staff.

Manufacturing Overhead

All indirect costs associated with the production process, like utilities and salaries for support staff.

Fixed Cost

A type of business expense that does not change with the level of production or sales, including costs like rent, salaries, and insurance premiums.