Sapphire, Inc. is a C corporation and has the following assets: Cash: Basis $30,

Question

Sapphire, Inc. is a C corporation and has the following assets:

Cash: Basis $30,000, FMV $30,000

Accounts receivable: Basis $10,000, FMV $10,000

Inventory (FIFO): Basis $20,000, FMV $25,000

Land: Basis $45,000, FMV $60,000

Rather than liquidating Sapphire, Inc., Joshua and George elect S corporation status for corporation. Peach subsequently sells the inventory for $24,000, the land for $90,000 and collects the accounts receivable in the following year. If Sapphire, Inc. had remained a C corporation, its taxable income the following year would have been $16,000.

a) Determine the tax consequences of the S corporation election on Sapphire, Inc.

b) Determine the tax consequences of the sale of the land and inventory and the collection of the accounts receivable on Sapphire Inc., Joshua, and George.

Explanation / Answer

Answer:-

The tax consequences of the S corporation election on Sapphire, Inc=

= 16000* 15% = 2400..

The tax consequences of the sale of the land and inventory and the collection of the accounts receivable on Sapphire Inc., Joshua, and George.:-

(24000+90000)- (10000+60000)= 44000

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