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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.

FINANCIAL ACCOUNTING
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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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
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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