Required: For each of the four assets individually, state the amount that should be elected as proceeds under Section 85 of the Income Tax Act, state the amount of cash consideration, and state the value of the preferred shares Ms. Kline should accept as consideration for the assets.
Required: For each of the four assets individually, state the amount that should be elected as proceeds under Section 85 of the Income Tax Act, state the amount of cash consideration, and state the value of the preferred shares Ms. Kline should accept as consideration for the assets.
Chapter18: Corporations: Organization And Capital Structure
Section: Chapter Questions
Problem 35P
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Question
Transcribed Image Text:Tia Kline, a resident of Canada, is the sole shareholder of KI Inc. She plans to transfer four assets, which she owns, to KI Inc. in
exchange for cash and preferred shares of KI Inc. She wishes to receive the maximum amount in cash that she can receive and still
defer the recognition of income for tax purposes on the transfer of the assets. Tia and KI Inc. will jointly make a Section 85 election for
each of the assets. The following chart outlines the details of the assets.
UCC
FMV
$ 260,000 $
22,500
50,000
100,000
ACB
52,000
30,000
60,000
0
$ 432,500 $ 142,000 $
Inventory
Automobile
Patent
Customer list
Inventory
Automobile
Patent
Customer list
$
Required:
For each of the four assets individually, state the amount that should be elected as proceeds under Section 85 of the Income Tax Act,
state the amount of cash consideration, and state the value of the preferred shares Ms. Kline should accept as consideration for the
assets.
$
FMV
260,000 $
22,500
50,000
100,000
432,500 $
ACB
$
52,000
30,000 $
60,000
0
0
16,500
30,000
0
142,000 $
46,500
UCC
0
16,500
30,000
0
46,500 $
Elected
amount
0 $
Cash
>
P
Preferred
Shares
0 $
0
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