Mock Corporation converts to S corporation status in 2014. Mock used the LIFO inventory method in 2013 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 2013 corporate tax liability, assuming that Mock is subject to a 35% tax rate.

Question

Quizplus · Accepted Answer

The LIFO reserve is $115,000 ($550,000 - $435,000). The tax on the LIFO reserve is $40,250 ($115,000 x 35%).

Mock Corporation Converts to S Corporation Status in 2014