McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 66

Tempe Corporation is a calendar-year corporation. At the beginning of 2011, its election to be taxed as an S corporation became effective. Tempe Corp.'s balance sheet at the end of 2010 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation):

Tempe's business income for the year was $40,000 (this would have been its taxable income if it were a C corporation).
a. During 2011, Tempe sold all of the inventory it owned at the beginning of the year for $210,000. What is its built-in gains tax in 2011
b. Assume the same facts as in (a), except that if Tempe were a C corporation, its taxable income would have been $7,000. What is its built-in gains tax in 2011
c. Assume the original facts except the land was valued at $140,000 instead of $120,000. What is Tempe's built-in gains tax in 2011