Question

King Corporation, a cash method taxpayer that uses the calendar year as its tax year, was incorporated on June 1, 1984. The corporation made its initial S election on December 1 of last year, effective for the current tax year. Earnings and profits of $60,000 have been retained from C corporation tax years. Which one of the following events results in the recognition of a built-in gain?

Group of answer choices

None of the above are built-in gains.

collection of accounts receivable in the current year that resulted from services performed last year

collection of dividends declared on April 5 of the current year on stock purchased on February 14 of the current year

collection of interest income earned in the current year on bonds purchased on January 1 of last year

Answer 1

Correct Answer:

Option(2) that is collection of account receivable in the current year that result from the service performed last year is the collect answer, There is a built in gain in this transection.

Incorrect answers:

Option(1) is incorrect answer because there is a built in gain that is the collection of account receivable in the current year that result from the service performed last year.

Option(3) is incorrect answer that is the collection of dividends declared on April 5 of the current year on stock purchased on February 14 of the current year because there is no built in gain find in the given statement.

Option(4) is incorrect answer because there is no built in gain in the collection of interest income earned in the current year on bonds purchased on January 1 of last year.

So correct answer is option(2)