Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2013. Rivendell converted to an S corporation on January 1, 2014.
Asset ________________________Adjusted basis ___________FMV
Cash .......................................... $40,000 ................ $40,000
Accounts receivable ......................... 30,000 .................. 30,000
Inventory .................................... 130,000 .................. 60,000
Land .......................................... 100,000 ................ 125,000
Totals ....................................... $300,000 ............... $255,000
a. What is Rivendell's net unrealized built-in gain at the time it converted to an S corporation?
b. Assuming the land was valued at $200,000, what would be Rivendell's net unrealized gain at the time it converted to an S corporation?
c. Assuming the original land value but that the inventory was valued at $85,000, what would be Rivendell's net unrealized gain at the time it converted to an S corporation?