Chapter 2 The Financial Market Environment

Question

20) Meese Paper Distributors, Inc. has before-tax earnings of $1,900,000. Calculate the amount of the total tax liability.

Range of taxable income Marginal rate

$ 0 to $ 50,000 15%

50,000 to 75,000 25

75,000 to 100,000 34

100,000 to 335,000 39

335,000 to 10,000,000 34

10,000,000 to 15,000,000 35

15,000,000 to 18,333,333 38


21) During 2002, a firm has sold 5 assets described below. Calculate the tax liability on the assets. The firm pays a 40 percent tax rate on ordinary income.

Chapter 2   The Financial Market Environment

Buy Answer

File: Chapter 001 A Framework for Financial Accounting

Question

[Question]

1. Accounting is a system of maintaining records of a company’s operations and communicating this information to decision makers.

[Question]

2. Accounting information is used by investors to decide whether to invest in a company’s stock.

[Question]

3. Accounting information is used by creditors to decide whether to invest in a company’s stock.

[Question]

4. The primary functions of financial accounting are to measure business activities of a company and to communicate those measurements to internal parties for decision-making purposes.

[Question]

5. Financing activities are transactions involving externals sources of funding.

[Question]

6. Investing activities include the purchase and sale of (1) long-term resources and (2) any resources not directly related to a company’s normal operations.

[Question]

7. Operating activities include transactions that relate to the primary operations of the company.

[Question]

8. A corporation is an entity that is legally separate from its owners.

[Question]

9. Cash, inventory, supplies, and buildings are examples of liabilities.

[Question]

10. Amounts owed to suppliers, workers, governments, and utility companies are examples of liabilities.

[Question]

11. If total assets of a company equal $12,000 and total stockholders’ equity equals $4,000, then total liabilities equal $8,000.

[Question]

12. If total liabilities of a company equal $16,000 and total stockholders’ equity equals $9,000, then total assets equal $7,000.

[Question]

13. The accounting equation shows that a company’s resources equal creditors’ and owners’ claims to those resources.

[Question]

14. The costs of advertising, utilities, and salaries in the current reporting period are examples of liabilities.

[Question]

15. The difference between revenues and expenses is referred to as net income or net loss.

[Question]

16. If a company reports revenues of $17,000 and expenses of $12,000, then net income equals $5,000.

[Question]

Buy Answer

Chapter 2 Scarcity and the World of Trade-Offs

Question

90) What is production? What economic factors are involved in production?

91) Briefly explain the difference between the concepts of scarcity and shortage.


92) Briefly explain the factors of production and give an example of each.

93) Explain why even the most affluent people, businesses and counties never solve the problem of scarcity.

94) Labor, human capital, and entrepreneurship are resources related to human beings. Distinguish among the three resources.


95) Distinguish between scarcity and shortages.

Buy Answer

Chapter 2 Scarcity and the World of Trade-Offs

Question

33) Efficiency can correctly be defined as

A) producing outside the production possibilities boundary.

B) minimizing opportunity cost.

C) producing the maximum output with given technology and resources.

D) providing for the immediate needs of the greatest proportion of the population.


34) When an economy is operating efficiently, which is true?

A) All resources are fully employed.

B) It would be possible to increase the output of 1 good without decreasing the output of the other.

C) Resources are not fully employed or current technology is not being fully utilized.

D) This economy is operating to the right of its production possibilities curve (PPC).

35) Typically, the greater the specialization of resources,

A) the less production that takes place.

B) the greater the bow of the production possibilities curve.

C) the poorer the country becomes.

D) the greater the unemployment in the country.

36) The production possibilities curve bows outward because

A) opportunity costs are decreasing as the production of a good increases.

B) opportunity costs are increasing as the production of a good increases.

C) opportunity costs are fixed as the production of a good increases.

D) resources are of uniform quality.


Chapter 2 Scarcity and the World of Trade-Offs

Buy Answer

Chapter 2 Analyzing and Recording Business Transactions

Question

2.3 Demonstrate the use of the general journal and the general ledger to record business transactions

1) The general journal was developed to organize transactions by account.

2) The posting reference column of the general ledger shows the sources of the transferred information.

3) The general journal is used to record only the revenue transactions of a business.

4) The act of recording a transaction is called "journalizing".


5) Journalizing is the transfer of information from the general journal to the general ledger.

6) The posting reference column of the general journal will include the number of the account to which the information is being posted.

7) Transactions are recorded in order of the dollar amount of the transaction.

8) Chronological order dictates the order in which transactions are journalized.

9) Once you post the transaction to the general ledger, you must go back to the general journal and fill in:

A) the date.

B) the amount debited or credited.

C) the posting reference column with the account number of the posting.

D) the account name that was involved in the transaction.

E) the dollar value.


10) Instead of T-accounts, businesses more than likely use a:

A) chart of accounts.

B) balance sheet.

C) general ledger.

D) general journal.

E) income statement.

Buy Answer

Chapter 2 Scarcity and the World of Trade-Offs

Question

36) If Irene can make either four chairs or one table in an hour and Greg can make either three chairs or two tables in an hour, then

A) Irene has the absolute advantage in the production of tables.

B) Greg has the absolute advantage in the production of chairs.

C) Irene has the comparative advantage in the production of chairs.

D) Greg has the comparative advantage in the production of chairs.


37) If Irene can make either four chairs or one table in an hour and Greg can make either three chairs or two tables in an hour then

A) Irene has the absolute advantage in the production of chairs.

B) Irene has the comparative advantage in the production of tables.

C) Greg has the absolute advantage in the production of chairs.

D) Greg has the comparative advantage in the production of chairs.

38) When Adam Smith's ten pin workers specialized, they were able to increase output of pins in a day from 200 to 48,000. One reason for the increase in pin output was due to

A) the time saved when workers do not need to shift from one task to another.

B) the boredom the workers suffered when they stopped making a whole pin and only concentrated on one task such as painting the heads white.

C) new machinery.

D) the bonus they received when they produced more pins.

39) The making and selling of a pencil for ten cents would likely NOT be possible, but for

A) relative advantage.

B) the production possibilities curve.

C) absolute advantage.

D) the division of labor.


40) When productive activities are organized according to the principle of the division of labor,

A) scarcity is eliminated.

B) we do not devote enough resources for capital investment.

C) total output increases due to the advantages of specialization.

D) an inefficient outcome results.

41) Division of labor means that

A) the labor market in the United States is geographically segmented.

B) some employees join labor unions and others do not.

C) management and labor are always in conflict.

D) the production process is divided into smaller tasks.

42) Two factories make wooden chairs. If the workers in factory A make each chair from start to finish and the workers in factory B divide labor, one would assume

A) the chairs in factory A are of higher quality.

B) the workers in factory B have more job satisfaction.

C) factory B can take advantage of division of labor and produce more efficiently.

D) factory A can take advantage of division of labor and produce more efficiently


43) If a CEO can type faster than her secretary, then

A) the CEO has a comparative advantage in typing.

B) the CEO has neither a comparative advantage in typing, nor in management.

C) the CEO should still continue performing CEO duties since the CEO has a comparative advantage in management, and the secretary should continue typing.

D) the CEO should still continue performing CEO duties as well as typing since he has a comparative advantage in both management, and typing.

44) "My brother is better at cooking, better at cleaning, and better at fixing the car than I am." Relative to me, my brother has

A) an absolute advantage in cooking, cleaning, and car repair.

B) a comparative advantage in cooking, cleaning, and car repair.

C) more intelligence than me.

D) more income than me.

Buy Answer

Chapter 02 Financial Markets and Institutions

Question

41. Which of the following financial intermediaries has shown a preference for investing in long-term financial assets?
A. Commercial banks
B. Insurance companies
C. Finance companies
D. Savings banks

42. Which of the following financial intermediaries can loan money directly to businesses?
A. Mutual funds
B. Pension funds
C. Insurance companies
D. All of these

43. Insurance companies can usually cover the claims of policyholders because:
A. the incidence of claims normally averages out.
B. they issue thousands of insurance policies.
C. the cost of paying for claims has already been factored into the price of the policies.
D. all of these.

44. Which of the following is not typically considered a function of financial intermediaries?
A. Providing a payment mechanism
B. Investing in real assets
C. Accumulating funds from smaller investors
D. Spreading, or pooling risk among individuals


45. U.S. bonds and other debt securities are mostly held by:
A. institutional investors.
B. households.
C. foreign investors.
D. state and local governments.

46. Liquidity is important to a mutual fund because:
A. a fund that is less liquid will attract more investors.
B. the fund's shareholders may want to redeem their shares at any time.
C. the fund's managers need liquidity to trade actively.
D. the fund needs to distribute payouts to its shareholders and managers periodically.

47. Property insurance companies protect themselves against the extensive damage caused by hurricanes and earthquakes by:
A. selling thousands of policies to different homeowners.
B. factoring the cost into the price of the policies.
C. buying reinsurance against such catastrophes.
D. declaring bankruptcy when the need arises.

48. Financing for public corporations flows through:
A. the financial markets only.
B. financial intermediaries only.
C. derivatives markets.
D. the financial markets, financial intermediaries, or both.

49. When corporations need to raise funds through stock issues, they rely on the:
A. primary market.
B. secondary market.
C. tertiary market.
D. centralized NASDAQ exchange.


50. A primary market would be utilized when:
A. investors buy or sell existing securities.
B. shares of common stock are exchanged.
C. securities are initially issued.
D. a commission must be paid on the transaction.

51. The primary distinction between securities sold in the primary and secondary markets is the:
A. riskiness of the securities.
B. price of the securities.
C. previous issuance of the securities.
D. profitability of the issuing corporation.

Buy Answer

Assignment – Strategic Alliances and Human Resource Management

Question

Strategic Alliances and Human Resource Management

Background

LGE is one of the leading global companies in the industry. It is composed of five divisions: air conditioning, business solutions, home appliances, home entertainment, and mobile communication. LGE has 114 subsidiaries worldwide and employs around 82,000 people. LGE is a South Korean company and as such has some unique characteristics derived from the South Korean culture and economic structure.

Directions

In this assignment, you will read several peer-reviewed articles.

• First, read three peer-reviewed articles related to the South Korean economy, chaebols, and culture.

• Then, search for at least one peer-reviewed article related to the strategic alliances.

• Next, read at least one article on human resource strategies for Multinational Corporations (MNCs).

• In addition, read a few articles related to the local and global operations of LGE.

Then, respond to the following:

1 Explain the organization and purpose of chaebols.

2 Identify the positive and negative characteristics of chaebols for both local and global economy. Also, explain the role they play in the South Korean economy.

3 Identify the characteristics of LGE’s human resources strategy.

4 Identify how this HR strategy is helping the company to deal with the diversity.

5 LGE has established a number of strategic alliances with partners from all over the world. Select one of these alliances and analyze and evaluate its outcome.

Write a seven-to-nine-page paper in Word format. Utilize at least five to six scholarly sources in your research. Apply APA standards to citation of sources.

Make sure you write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation.

Grading Criteria

Explained the purpose of chaebols. Provided an appropriate explanation of how chaebols correlate the strategies of South Korean business.

Identified both positive and negative characteristics for local and global economies. Explained the role chaebols play in the South Korean economy.

Identified the characteristics of LGE’s human resources strategy.

Identified how the HR strategy incorporates diversity within the company.

Analyzed and evaluated an alliance with a business partner. Explained how the alliance benefits both sides in the business setting.

Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; and displayed accurate spelling, grammar, and punctuation.

Assignment - Strategic Alliances and Human Resource Management

Buy Answer

Chapter 22 S Corporations

Question

62. [LO4] Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation, and each earns a salary of $80,000 from the corporation; in addition, they expect their share of business profits to be $60,000 each. How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits?

63. [LO4] {Planning} Using the facts in problem 62, could Adam and Tom lower their payroll tax exposure if they operated their business as a partnership? Why or why not?

64. [LO4]) This year, Justin B.’s share of S corporation income includes $4,000 of interest income, $5,000 of dividend income, and $40,000 of net income from the corporation’s professional service business activity.

A. Assume that Justin B. materially participates in the S corporation. How much of his S corporation income is potentially subject to the Net Investment Income tax?

B. Assume that Justin B. does not materially participate in the S corporation. How much of his S corporation income is potentially subject to the Net Investment Income tax?

65. [LO4] Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Michael (86 percent owner), and Tito (10.5 percent owner) are shareholders in Jackson 5 Inc. (an S corporation). As employees of the company, they each receive health insurance ($10,000 per year benefit), dental insurance ($2,000 per year benefit), and free access to a workout facility located at company headquarters ($500 per year benefit). What are the tax consequences of these benefits for each shareholder and for Jackson 5 Inc.?

66. [LO 5] Maple Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Brady, who immediately elected S corporation status. On December 31 of the current year, Maple distributed $30,000 cash to Brady. What is the amount and character of gain Brady must recognize on the distribution in each of the following alternative scenarios?

    1. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $35,000.

    1. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $8,000.

c. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $0.

67. [LO 5] Oak Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Glover, and has always operated as a C corporation. However, at the beginning of this year, Glover made a qualifying S election for Oak Corp., effective January 1. Oak Corp. did not have any C corporation earnings and profits on that date. On June 1, Oak Corp. distributed $15,000 to Glover. What is the amount and character of gain Glover must recognize on the distribution, and what is his basis in his Oak Corp. stock in each of the following alternate scenarios?

a. At the time of the distribution, Glover’s basis in his Oak Corp. stock was $35,000.

b. At the time of the distribution, Glover’s basis in his Oak Corp. stock was $8,000.

c. At the time of the distribution, Glover’s basis in his Oak Corp. stock was $0.

68. [LO 5] Janna has a tax basis of $15,000 in her Mimikaki stock (Mimikaki has been an S corporation since inception). In 2014, Janna was allocated $20,000 of ordinary income from Mimikaki. What is the amount and character of gain she recognizes from end of the year distributions in each of the following alternative scenarios, and what is her stock basis following each distribution?

a. Mimikaki distributes $10,000 to Janna.

).

b. Mimikaki distributes $20,000 to Janna.

.

).

d. Mimikaki distributes $40,000 to Janna.

69. [LO 5] Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,000. Marcus is Johnstone’s sole shareholder. What is Johnstone’s accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios?

Johnstone Corporation

Income Statement

December 31, year 2

Year 2

(S corporation)

Sales Revenue

$150,000

Cost of Goods Sold

(35,000)

Salary to owners

(60,000)

Employee Wages

(50,000)

Depreciation Expense

(4,000)

Miscellaneous Expenses

(4,000)

Interest income

10,000

Overall Net Income

$7,000

a. Johnstone distributed $6,000 to Marcus in year 2.

b. Johnstone distributed $10,000 to Marcus in year 2.

c. Johnstone distributed $16,000 to Marcus in year 2.

d. Johnstone distributed $26,000 to Marcus in year 2.

70. [LO 5] At the end of the year, before distributions, Bombay (an S corporation) has an accumulated adjustments account balance of $15,000 and accumulated E&P of $20,000 from a previous year as a C corporation. During the year, Nicolette (a 40 percent shareholder) received a $20,000 distribution (the remaining shareholders received $30,000 in distributions). What is the amount and character of gain Nicolette must recognize from the distribution? What is her basis in her Bombay stock at the end of the year (assume her stock basis is $40,000 after considering her share of Bombay’s income for the year but before considering the effects of the distribution)?

71. [LO 5] Pine Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Connor, who has always operated it as a C corporation. However, at the beginning of this year, Connor made a qualifying S election for Pine Corp., effective January 1. Pine Corp. reported $70,000 of C corporation earnings and profits on the effective date of the S election. This year (its first S corporation year), Pine reported business income of $50,000. Connor’s basis in his Pine Corp. stock at the beginning of the year was $15,000. What is the amount and character of gain Connor must recognize on the following alternative distributions, and what is his basis in his Pine Corp. stock at the end of the year?

a. Connor received a $40,000 distribution from Pine Corp. at the end of the year.

b. Connor received a $60,000 distribution from Pine Corp. at the end of the year.

c. Connor received a $130,000 distribution from Pine Corp. at the end of the year.

d. Connor received a $150,000 distribution from Pine Corp. at the end of the year.

72. [LO 5] Carolina Corporation, an S corporation, has no corporate E&P from its years as a C corporation. At the end of the year, it distributes a small parcel of land to its sole shareholder Shadiya. The fair market value of the parcel is $70,000 and its tax basis is $40,000. Shadiya’s basis in her stock is $14,000. Assume Carolina Corporation reported zero taxable income before considering the tax consequences of the distribution.

a. What amount of gain or loss, if any, does Carolina Corporation recognize on the distribution?

b. How much gain must Shadiya recognize (if any) as a result of the distribution, what is her basis in her Carolina Corporation stock after the distribution, and what is her basis in the land?

c. What is your answer to (a) if the fair market value of the land is $25,000 rather than $70,000?

d. What is your answer to (b) if the fair market value of the land is $25,000 rather than $70,000?

73. [LO5] Last year, Miley decided to terminate the S corporation election of her solely owned corporation on October 17,2013 (effective immediately), in preparation for taking it public. At the time of the election, the corporation had an accumulated adjustments account balance of $150,000 and $450,000 of accumulated E&P from prior C corporation years, and Miley had a basis in her S corporation stock of $135,000. During 2014, Miley’s corporation reported $0 taxable income or loss. Also, during 2014 the corporation made distributions to Miley of $80,000 and $60,000. How are these distributions taxed to Miley assuming the following?

a. Both distributions are in cash, and the first was paid on June 15 and the second on November 15.

.

b. Both distributions are in cash, and the first was paid on June 15 and the second on September 30.

c. The same facts in (b) except the June 15 distribution was a property (noncash) distribution (fair market value of distributed property equal to basis).

.

74. [LO 5] Alabama Corporation, an S corporation, liquidates this year by distributing a parcel of land to its sole shareholder Mark Ingram. The fair market value of the parcel is $50,000 and its tax basis is $30,000. Mark’s basis in his stock is $25,000.

a. What amount of gain or loss, if any, does Alabama Corporation recognize on the distribution?

b. How much gain must Mark recognize (if any) as a result of the distribution and what is his basis in the land?

c. What is your answer to (a) if the fair market value of the land is $20,000 rather than $50,000?

d. What is your answer to (b) if the fair market value of the land is $20,000 rather than $50,000?

75. [LO 6] Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2013. Rivendell converted to an S corporation on January 1, 2014.

Asset

Adjusted basis

FMV

Cash

$40,000

$40,000

Accounts receivable

30,000

30,000

Inventory

130,000

60,000

Land

100,000

125,000

Totals

$300,000

$255,000

a. What is Rivendell’s net unrealized built-in gain at the time it converted to an S corporation?

b. Assuming the land was valued at $200,000, what would be Rivendell’s net unrealized gain at the time it converted to an S corporation?

c. Assuming the original land value but that the inventory was valued at $85,000, what would be Rivendell’s net unrealized gain at the time it converted to an S corporation?

76. [LO 6] Virginia Corporation is a calendar year corporation. At the beginning of 2014, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2013 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

$20,000

$20,000

Accounts receivable

40,000

40,000

Inventory

90,000

200,000

Land

150,000

175,000

Totals

$300,000

$435,000

In 2014, Virginia reported business income of $50,000 (this would have been its taxable income if it were still a C corporation). What is Virginia’s built-in gains tax in each of the following alternative scenarios?

a. During 2014, Virginia sold inventory it owned at the beginning of the year for $100,000. The basis of the inventory sold was $55,000.

b. Assume the same facts as (a) except Virginia had a net operating loss carryover of $24,000 from its time as a C corporation.

c. Assume that same facts as (a) except that if Virginia were a C corporation, its taxable income would have been $1,500.

77. [LO 6] Tempe Corporation is a calendar-year corporation. At the beginning of 2014, its election to be taxed as an S corporation became effective. Tempe Corp.’s balance sheet at the end of 2013 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

$20,000

$20,000

Accounts receivable

40,000

40,000

Inventory

160,000

200,000

Land

150,000

120,000

Totals

$370,000

$380,000

Tempe’s business income for the year was $40,000 (this would have been its taxable income if it were a C corporation).

a. During 2014, Tempe sold all of the inventory it owned at the beginning of the year for $210,000. What is its built-in gains tax in 2014?

b. Assume the same facts as in (a) except that if Tempe were a C corporation, its taxable income would have been $7,000. What is its built-in gains tax in 2014?

c. Assume the original facts except the land was valued at $140,000 instead of $120,000. What is Tempe’s built-in gains tax in 2014?

78. [LO 6] Wood Corporation was a C corporation in 2013 but elected to be taxed as an S corporation in 2014. At the end of 2013, its earnings and profits were $15,500. The following table reports Wood’s (taxable) income for 2014 (its first year as an S corporation).

Wood Corporation

Income Statement

December 31, 2014

Sales Revenue

$150,000

Cost of Goods Sold

(35,000)

Salary to owners

(60,000)

Employee Wages

(50,000)

Depreciation Expense

(4,000)

Miscellaneous Expenses

(4,000)

Interest income

8,000

Dividend Income

2,000

Overall Net Income

$7,000

What is Wood Corporation’s excess net passive income tax for 2014?

79. [LO 6] Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios.

a. Passive investment income, $100,000; expenses associated with passive investment income, $40,000; gross receipts, $120,000; taxable income if C corporation, $40,000; corporate E&P, $30,000.

b. Passive investment income, $100,000; expenses associated with passive investment income, $70,000; gross receipts, $120,000; taxable income if C corporation, $1,200; corporate E&P, $30,000.

c. Passive investment income, $100,000; expenses associated with passive investment income, $40,000; gross receipts, $120,000; taxable income if C corporation, $40,000; corporate E&P, $0.

80. [LO 5, 6] {Planning; Research} Mark is the sole shareholder of Tex Corporation. Mark first formed Tex as a C corporation. However, in an attempt to avoid having Tex’s income double taxed, Mark elected S corporation status for Tex several years ago. On December 31, 2014, Tex reports $5,000 of earnings and profits from its years as a C corporation and $50,000 in its accumulated adjustments account from its activities as an S corporation (including its 2014 activities). Mark discovered that for the first time Tex was going to have to pay the excess net passive income tax. Mark wanted to avoid having to pay the tax but he determined the only way to avoid the tax was to eliminate Tex’s E&P by the end of 2014. He determined that, because of the distribution ordering rules (AAA first), he would need to have Tex immediately (in 2014) distribute $55,000 to him. This would clear out Tex’s accumulated adjustments account first and then eliminate Tex’s C corporation earnings and profits in time to avoid the excess net passive income tax. Mark was not sure Tex could come up with $55,000 of cash or property in time to accomplish his objective. Does Mark have any other options to eliminate Tex’s earnings and profits without first distributing the balance in Tex’s accumulated adjustments account?

81. [LO 6] {Planning} Farve Inc. recently elected S corporation status. At the time of the election, the company had $10,000 of accumulated earnings and profits, and a net unrealized gain of $1,000,000 associated with land it had invested in (although some parcels had an unrealized loss). In the next couple of years, most of the income the company expects to generate will be in the form of interest and dividends (approximately $200,000 per year). However, in the future, the company will want to liquidate some of its current holdings in land and possibly reinvest in other parcels. What strategies can you recommend for Farve Inc. to help reduce its potential tax liability as an S corporation?

82. [LO 6] Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year. At the beginning of year 1 it elected to be taxed as an S corporation. MC uses the LIFO method to value its inventory. At the end of year 0, under the LIFO method, its inventory of rugs was valued at $150,000. Under the FIFO method, the rugs would have been valued at $170,000. How much LIFO recapture tax must MC pay, and what is the due date of the first payment under the following alternative scenarios?

a. Magic Carpets’ regular taxable income in year 0 was $65,000.

b. Magic Carpets’ regular taxable income in year 0 was $200,000.

Buy Answer