Lockhart Corporation is a calendar-year corporation. At the beginning of 2013, its election to be taxed as an S corporation became effective. Lockhart Corp.'s balance sheet at the end of 2012 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation):
|
Asset
|
Adjusted Basis
|
FMV
|
|
Cash
|
$ 35,000
|
$ 35,000
|
|
Accounts receivable
|
25,000
|
25,000
|
|
Inventory
|
180,000
|
210,000
|
|
Land
|
125,000
|
120,000
|
|
Totals
|
$365,000
|
$390,000
|
Lockhart's business income for the year was $65,000 (this would have been its taxable income if it were a C corporation).
1. During 2013, Lockhart sold all of the inventory it owned at the beginning of the year for $250,000. What is its built-in gains tax in 2013? Be sure to show your work.
2. Assume the same facts as in part (1), except that if Lockhart were a C corporation, its taxable income would have been $17,000. What is its built-in gains tax in 2013? Be sure to show your work.
3. Assume the original facts except the land was valued at $115,000 instead of $120,000. What is Lockhart's built-in gains tax in 2013? Be sure to show your work.