Business & farm

This forum is not real conducive to having these types of conversation as it is really best to do this one on one with a tax professional.
To respond to your questions:
1) Kudos to you for attempting to grasp an understanding of what is going on.
2) You can't put in "negative retained earnings".  This ties into my comment that what occurred while a SMLLC does not carry over to the S corp.  Retained earnings will start at zero.
3) Section 357(c) is somewhat complicated.  Based on the limited facts, it does not appear that you will have to recognize any gain as a result of Section 357(c).  Discussed below.
4) As noted previously, your beginning basis equals your contribution of property (including cash) less any debt assumed by the S corp upon incorporation.  The basis of depreciable property is the adjusted basis in the hands of the transferor (you) not the FMV of the property.  So if you are contributing property which has a FMV of $10,000 but an adjusted basis of $5,000 (due to depreciation), then your beginning basis is the $5,000.
5) There are also rules covering depreciable property which is that the property has a "step into the shoes" concept.  You need to make sure you understand this if applicable.
6) As you have alluded to, Section 357(c) can cause recognized gain. There is one very important exception to the general rule under IRC Sec. 357(c) and that is liabilities which would lead to a deduction upon payment (i.e cash basis salaries or rents payable or accounts payable of a cash basis taxpayer) are not to be included in the total amount of liabilities which are in excess of the assets basis transferred.
7) So based on your limited facts, your beginning basis would essentially be the sum of cash contributed plus adjusted basis of your inventory.

Dr. Cash
Dr. Inventory
Your capital account would be the net of these accounts.

Since you were a cash basis entity prior to the S corp (which is an assumption), the payables from the prior SMLLC will be addressed as they are paid.  This will then have the proper effect on your basis at the time they are paid.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.