Lott Corporation in Macon,Georgia converts to S corporation status in 2010.Lott used the LIFO inventory method in 2009 and had a LIFO inventory of $420,000 (FIFO value of $550,000).How much tax must be added to the 2009 corporate tax liability,assuming that Lott is subject to a 35% tax rate.

Question

Quizplus · Accepted Answer

Since Lott Corporation converted to S corporation status in 2010, there is no impact on the 2009 tax liability due to the change in inventory method. However, since Lott used the LIFO inventory method, it must add back to its taxable income the difference between its LIFO inventory value and its FIFO inventory value, multiplied by the tax rate. In this case, the difference is $130,000 ($550,000 - $420,000), and the tax liability would be $45,500 ($130,000 x 35%). Therefore, choice B is the correct answer.

Lott Corporation in Macon,Georgia Converts to S Corporation Status in 2010.Lott