Clampett, Inc., converted to an S corporation on January 1, 2019.At that time, Clampett, Inc., had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000).What is Clampett, Inc.'s built-in gain or loss on January 1, 2019?

Question

Quizplus · Accepted Answer

The built-in gain is calculated as the difference between the fair market value and the basis of the assets. Inventory has a built-in gain of $30,000 ($60,000 FMV - $30,000 basis), and equipment has a built-in loss of $20,000 ($60,000 FMV - $80,000 basis). The net built-in gain is $10,000 ($30,000 gain - $20,000 loss).