Question

Mock Corporation converts to S corporation status in 2020. Mock used the LIFO inventory method in 2019 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock’s 2019 corporate tax liability, assuming that Mock is subject to a 21% tax rate.

Answer 1

Particulars	Amount (in $)
1.FIFO basis Inventory	$550,000
2.Less : LIFO basis Inventory	($435,000)
3.Subject to tax (1-2)	$115,000
4.Tax rate	21%
5.Total Tax (3* 4)	$24,150
6.No. of Instalments	4
Tax to be added up per Installment(5/6)	$6,037.50
Note: Being Corporate tax liablity is calculated for 4 instalments. One installmentmust be added to Mock’s 2019 corporate tax liability and the remaining 3 installments of each $6,037.50 are being paid with next 3 returns