#2) (10 Marks) Sally Stork owns 80% of the shares of Stork Diaper Service Ltd. The other 20% of the shares are owned by her father Sam Stork who started the corporation. Sally has been slowly buying out her father's interest in the corporation by purchasing his shares. Sally is also employed by Stork Diaper Service Ltd. as the Manager of Operations. Stork Diaper Service Ltd. is a Canadian controlled private corporation. The fiscal year end for the corporation is December 31, 2017 Stork Diaper Service Ltd. has been very successful and has accumulated a bank balance of $500,000. It has grown from a family run business to having 25 employees. As a result of this success and in recognition of the employee's contribution to that success Stork Diaper Service Ltd. it has a generous policy about making loans to its employees. Under that policy employees are allowed a loan of up to $25,000 to acquire an automobile that will be used for employment. During 2017 Sally Stork had the following transactions with the corporation: Loan A - On January 1, 2017 Sally took an interest free loan of $150,000. There is no formal loan agreement for this loan. Sally used the proceeds to purchase a cabin in the wilderness. No amounts have been repaid on the loan as of December 31, 2018. #2) Continued Loan B - On July 1, 2017 Sally took advantage of the $25,000 loan available to employees. She used the proceeds from this loan to purchase an automobile which she will use for her work. The loan agreement indicates interest at 1% and that Sally will repay $5,000 January 1, 2018, $10,000 July 1, 2018 and $10,000 July 1, 2019. Assume all loan interest and principal payments are made as scheduled. You can also assume that the prescribed rate is 3% for the entire period under consideration. REQUIRED: Describe the tax consequences for 2017 for Sally Stork as a result of these loans. Provide an explanation of your conclusions. #2) (10 Marks) Sally Stork owns 80% of the shares of Stork Diaper Service Ltd. The other 20% of the shares are owned by her father Sam Stork who started the corporation. Sally has been slowly buying out her father's interest in the corporation by purchasing his shares. Sally is also employed by Stork Diaper Service Ltd. as the Manager of Operations. Stork Diaper Service Ltd. is a Canadian controlled private corporation. The fiscal year end for the corporation is December 31, 2017 Stork Diaper Service Ltd. has been very successful and has accumulated a bank balance of $500,000. It has grown from a family run business to having 25 employees. As a result of this success and in recognition of the employee's contribution to that success Stork Diaper Service Ltd. it has a generous policy about making loans to its employees. Under that policy employees are allowed a loan of up to $25,000 to acquire an automobile that will be used for employment. During 2017 Sally Stork had the following transactions with the corporation: Loan A - On January 1, 2017 Sally took an interest free loan of $150,000. There is no formal loan agreement for this loan. Sally used the proceeds to purchase a cabin in the wilderness. No amounts have been repaid on the loan as of December 31, 2018. #2) Continued Loan B - On July 1, 2017 Sally took advantage of the $25,000 loan available to employees. She used the proceeds from this loan to purchase an automobile which she will use for her work. The loan agreement indicates interest at 1% and that Sally will repay $5,000 January 1, 2018, $10,000 July 1, 2018 and $10,000 July 1, 2019. Assume all loan interest and principal payments are made as scheduled. You can also assume that the prescribed rate is 3% for the entire period under consideration. REQUIRED: Describe the tax consequences for 2017 for Sally Stork as a result of these loans. Provide an explanation of your conclusions