Direct Inc., formerly a C corporation, elected S corporation status two years ago. On the first day of the S election, Direct owned a piece of equipment with a FMV of $90,000 and a basis of $60,000. During the current tax year, Direct sold this equipment for $110,000, which has since been fully depreciated. Assume there are no other gains or losses for Direct during the current tax year.

This is a two-part question.

Question 1: What amount of built-in gains tax will Direct Inc. pay due to this sale? Question 2: What total amount of gains will Direct pass through to its shareholders due to this

sale?

a) $ 6,300; $103,700

b) $23,100; $110,000

c) $ 6,300; $110,000

d) $23,100; $ 86,900