Clampett,Inc.converted to an S corporation on January 1,2017.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 1,2017?

Question

Quizplus · Accepted Answer

The built-in gain is calculated as the difference between the fair market value (FMV) and the basis of the assets at the time of conversion. 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 accounts receivable has no built-in gain or loss as FMV equals the basis. Therefore, the net built-in gain is $10,000 ($30,000 gain - $20,000 loss).