When Banff Ltd. was formed, it issued 265,000 shares for $20 per share. Sachiko Nakajima purchased 30,000 of these shares at issuance. In 2021, a creditor of Banff Ltd. has agreed to accept 35,000 new Banff Ltd. shares in settlement of debt with a face value of $800,000. At this time, the shares are valued at $25 per share. Shortly after this debt settlement, in 2021, Sachiko sells all of her shares to an arm’s length party for $28 per share. Required: FIRST, describe the tax consequence(s) to all of the shareholders of Banff Ltd. as a result of the of settlement of debt in exchange for new common shares. While calculations are required, ignore the dividend gross up and tax credit in your description. SECOND, describe the tax consequences to Sachiko Nakajima resulting from the sale of her Banff Ltd. shares. While calculations are required, ignore the dividend gross up and tax credit in your description. Make that you show all of your calculations and that they are properly labeled.

When Banff Ltd. was formed, it issued 265,000 shares for $20 per share. Sachiko Nakajima purchased 30,000 of these shares at issuance. In 2021, a creditor of Banff Ltd. has agreed to accept 35,000 new Banff Ltd. shares in settlement of debt with a face value of $800,000. At this time, the shares are valued at $25 per share. Shortly after this debt settlement, in 2021, Sachiko sells all of her shares to an arm’s length party for $28 per share. Required: FIRST, describe the tax consequence(s) to all of the shareholders of Banff Ltd. as a result of the of settlement of debt in exchange for new common shares. While calculations are required, ignore the dividend gross up and tax credit in your description. SECOND, describe the tax consequences to Sachiko Nakajima resulting from the sale of her Banff Ltd. shares. While calculations are required, ignore the dividend gross up and tax credit in your description. Make that you show all of your calculations and that they are properly labeled.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section2.A: Taxes

Problem 2P

See similar textbooks

Similar questions

1) Jensen Ltd is a firm that provides educational services tin the Australian marketplace. It is a listed company with 35,000,000 shares on issue. Jensen Ltd has just announced the results for the 2020/2021 financial year ending 30 June 2021. They report taxable income of $50,000,000 upon which they will be required to pay corporate tax at a rate of 30%. Jensen Ltd has a policy of distributing 75% of after- tax income as dividends. Paul is an Australian resident who owns 10,000 shares in Jensen Ltd and pays tax at a marginal rate of 45%. Document the total value of the dividend paid by Jensen Ltd to Paul ensuring that you account for the impact of both corporate and personal taxes.
A resident company with a 30% company tax rate is owned by one resident individual. The company has an opening credit balance of $12,000 in its franking account as at 1st of July 2020. Following are the transactions for the year: On 12 July 2020 a fully franked final dividend of $14,000 was paid to the shareholder; On 23 August 2020 the PAYG Instalment for June 2020 quarter of $22,000 was paid to the ATO; On 31 August 2020 a $42,000 cash dividend franked to 50% was paid to the shareholder; On 18 November 2020 the PAYG Instalment for September 2020 quarter of $22,000 was paid to the ATO; On 12 December 2020 the company received an income tax refund of $28,000 from the ATO for the 2020 tax return; On 21 February 2021 the PAYG Instalment for December 2020 quarter of $12000 was paid to the ATO; On 12 May 2021 the PAYG Instalment for March 2021 quarter of $12,000 was paid to the ATO; On 21 May 2021 the PAYG Withholding for the month of April 2021 of $42,000 for employee wages was paid to…
Godo
FX Services granted 16.0 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. The common shares have a market price of $9 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives? Note: Round your answer to 1 decimal place.
San Miguel Corporation provided the following balances on December 31, 2021: Accounts payable 500,000Accrued taxes 100,000Ordinary share capital 5,000,000Dividends - ordinary share 1,000,000Dividends - preference share 500,000Mortgage payable (P500,000 due in 6 months) 4,000,000Note payable, due January 31, 2023 2,000,000Share premium 500,000Preference share capital 3,000,000Premium on note payable 200,000Income summary - credit balance 4,000,000Retained earnings - January 1 2,500,000Unamortized issue cost on note payable 50,000Unearned rent income 150,000 1. What is the amount of noncurrent liabilities on December 31, 2021? 2. What is the amount of retained earnings on December 31, 2021?a. 6,500,000b. 2,500,000c. 1,000,000d. 5,000,000 3. What is the total shareholders’ equity on December 31, 2021?
12. ABC was formed by an investor who exchanged 2,000,000 for 100,000 shares of stock on August 1. ABC prepaid 12 months of rent by paying $96,000. ABC hired 3 employees and agreed to pay each $100,000/year. ABC agreed to pay on the first of each month after the services are performed. ABC withholds 20% for federal tax; 5% for state tax; and 7.65% for FICA. ABC sold services over the year for $1,200,000 on account. They warranty their work for 1 year. ABC estimated 1% for bad debts using the percent of sales method. ABC estimated $100,000 in warranty work, but only paid out $20,000 (as cash back) in warranties through the end of the year. ABC received $400,000 in cash against the receivable by year-end. On 8/15 ABC purchased equipment signing a note for $300,000. ABC depreciated the equipment by $30,000 for book purposes and $50,000 for tax purposes. ABC accrued $5,000 in interest expense. On 8/1 ABC invested $100,000 into muni-bonds. The bonds were valued at 102,000 by year-end and…
Assume the following independent cases:A. At the beginning of the year, a check was issued for P400,000 as payment for a piece of land, and the buyer assumed the liability for the unpaid taxes at the end of the year, P10,000 and those assessed for the current year at P9,000.B. A company issued 14,000 ordinary shares (P10 par) with a market value of P60 per share (based upon a recent sale of 100 shares) for the land. The land was recently appraised at P800,000 by independent and competent appraisers.C. A company rejected an offer to purchase the land for P8,000,000 cash two years ago. Instead, the company issued 100,000 ordinary shares for the land (market value of the ordinary share, P78 each based on several recent large transactions and normal weekly stock trading volume).D. A company purchased land by signing a note with the seller, requiring P100,000 down payment, payment of P120,000 one year from purchase, and P80,000 three years from purchase. The note is non-interest bearing,…
Dover’s management has decided to declare an additional $220,500 dividend. The date of declaration is December 30, 2021. The date of record will be January 15, 2022, and the date of payment will be January 30, 2022 As an additional signal to the market, Dover’s management repurchased 205,000 shares of Dover’s common stock on December 15, 2021, for $4.00 a share. Dover’s tax rate is 25%. 1. Make the appropriate journal entries, if any, to account for Dover’s extra dividend and stock repurchase (including any necessary changes to income tax expense). 2. What do you think Dover’s creditors’ (i.e. bank and bondholder) reaction will be to management’s decision to issue a second dividend and to repurchase shares? In other words, based on your changes to the financial statements and the change in the ratios, do you think the creditors will be happy with the decision to pay out so much cash to investors? Why or why not 3. At the beginning of 2020, Dover’s Board of Directors authorized stock…
You purchased 1,000 shares of zebulon copper co.solve this question general Accounting
Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $13.5 million due on February 8, 2022. Rushing sold 4.5 million shares of its $0.25 par, common stock on February 3, 2022, for $11.7 million. The proceeds from that sale along with $1.8 million from the maturation of some 3-month CDs were used to pay the notes payable on February 8. Through his attorney, one of Rushing’s construction workers notified management on January 5, 2022, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2021. As of December 31, 2021, management had been unaware of the injury, but reached an agreement on February 23, 2022, to settle the matter by paying the employee’s medical bills of $80,000. Rushing’s financial statements were finalized on March 3, 2022. Required:1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in its balance…
25) ABC Corporation purchased 30,000 shares of common stock of the XYZ, Inc. for $50 per share on January 2, 2020. XYZ Inc. had 100,000 shares of common stock outstanding during 2021, paid cash dividends of $180,000 during 2021, and reported net income of $550,000 for 2021. ABC Corporation should report revenue from investment for 2021 in the amount of?
Instructions Jupiter Bank decides to invest in trading securities in order to take advantage of short-term gains. The bank purchased the following securities for the year 2020. Jan. 15, 2020 Purchased 1,000 shares of Corbin Company common stock for $89 per share. May 23, 2020 Purchased 1500 shares of Petro Company common stock for $75 per share. At the end of 2020. Corbin Company's common stock was trading on the market at S93 per share, and Petro's common stock had a market price of $70 per share. Required: 1. Prepare joumal entries to record the preceding infomation. 2. What is the unrealized holding gain or loss and where is it reported on the 2020 financial statements? Enter your answer as positive amount.