Question

Turkey Corp., a cash basis calendar year C corporation in Savannah, Georgia, has $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14. By the end of the year, $70,000 of these receivables is collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income

Answer 1

The correct answer is $24,500.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Total Account receivable = $100,000

Amount collected = $70,000

So, if there is sufficient taxable income, then assume tax rate to be 35%.

So, we can calculate the Gains tax by using following formula:

Gain tax = Amount collected × Tax rate

By putting the value, we get

Gain tax = $70,000 × 35%

= $24,500.