Acc 842 Fall 2013 Tax Assignment

In: Business and Management

Submitted By coolke
Words 894
Pages 4
Question 1:
Johco Ltd., is a Canadian controlled private corporation. Dividends paid by Johnco are all non-eligible dividends. The balance sheet of Johnco at December 31, 2012 showed total assets of $124,000. The equities section showed the following: Liabilities | | $44,000 | Shareholders’ Equity | | | | 1000 Preferred Shares (PUC) | $22,000 | | | 1,200 Common Shares (PUC) | 31,200 | | | Retained Earnings | 26,800 | 80,000 | Total Equities | | $124,000 |

The following transactions are each independent transactions.
a) On March 1, 2013, a long-time debtholder has agreed to convert $20,000 of his debt to 1,000 Preferred shares with a paid up capital of $22,000. Assume that S. 51 of the Income Tax is not applicable. On April 1, 2013, a different shareholder with 500 Preferred Shares sold them for $11,000 in an arm’s length transaction. He had purchased the shares for $8,200 in 2011.
b) A different investor owns 200 of the common shares which he had purchased in 2009 for $20 per share. The company redeems them at a price of $44 per share.
c) In return for assets with a fair market value of $35,000, the company issued a demand note for $24,000 and 500 fully paid Preferred Shares having a per share Paid Up Capital equal to those currently outstanding.
d) The company paid and distributed a 5 percent stock dividend on the common shares. An addition was made to paid up capital of $1,560 with retained earnings reduced accordingly.
Required:
Describe fully the tax consequences of the above independent transactions. Ensure to include any changes to the taxpayers’ income as well as any changes to adjusted cost bases that the shareholder still owns after the transaction.

Question 2:
Joan Moffat is a successful accountant located in downtown Toronto. She has been talking to her financial planner and on January 1, 2013 she set up…...

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