Built-in gain on inventory

Reference no: EM133611025

Question: Star Ship, Inc., a C corporation in 2022, elected S corporation status effective January 1, 2023. Star Ship, Inc. recorded on December 31, 2022, for tax purposes, the cost basis of inventory as $500,000. The retail value of the above-mentioned inventory was valued at $750,000. Klingon Co., the largest liquidators in the United States, offered to purchase all of Star Ship, Inc.'s assets in a bulk-sale transaction with $505,000 allocated to inventory. A built-in gain on inventory exists in this situation in the amount of: Zero built-in gain on inventory. $5,000 built-in gain on inventory. $250,000 built-in gain on inventory. $750,000 built-in gain on inventory.

Reference no: EM133611025

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