Tia Kline, a resident of Canada, is the sole shareholder of KI Inc. She plans to transfer four assets, which she owns, to Kl Inc. inexchange for cash and preferred shares of KI Inc. She wishes to receive the maximum amount in cash that she can receive and stilldefer the recognition of income for tax purposes on the transfer of the assets. Tia and KI Inc. will jointly make a Section 85 election foreach of the assets. The following chart outlines the details of the assets.InventoryAutomobilePatentCustomer listFMVACBUCC$ 260,000 $22,50052,000 $30,00050,000100,00060,00016,50030,000Required:$432,500 $ 142,000 $ 46,500For 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 theassets.FMVACBUCCElectedamountCashPreferredSharesInventory$260,000 $52,0000Automobile22,50030,000 $16,500Patent50,00060,00030,000Customer list100,00000$432,500 $ 142,000 $46,500$0 $0$0

Section 85 of the Income Tax Act of Canada allows for the tax-deferred transfer of assets between a…

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. Inventory Automobile Patent Customer list FMV $ 260,000 $ 22,500 50,000 $ 100,000 432,500 $ ACB 52,000 30,000 $ 60,000 0 142,000 S UCC 0 16,500 30,000 0 46,500 $ Elected amount 0 $ Cash Preferred Shares 0 $ 0

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. Inventory Automobile Patent Customer list FMV $ 260,000 $ 22,500 50,000 $ 100,000 432,500 $ ACB 52,000 30,000 $ 60,000 0 142,000 S UCC 0 16,500 30,000 0 46,500 $ Elected amount 0 $ Cash Preferred Shares 0 $ 0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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