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Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar...

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year. At the beginning of year 1 it elected to be taxed as an S corporation. MC uses the LIFO method to value its inventory. At the end of year 0, under the LIFO method, its inventory of rugs was valued at $150,000. Under the FIFO method, the rugs would have been valued at $180,000. How much LIFO recapture tax must MC pay? Magic Carpets’ regular taxable income in year 0 was $1,000,000

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Answer #1
LIFO recapture tax must MC pay
Inventory of Rugs at LIFO $                        150,000.00
Less : Inventory of Rugs at FIFO $                        180,000.00
LIFO recapture tax must MC pay $                        (30,000.00)
Magic carpet taxable income will get reduced by $ 30,000
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