Assignment Problem Fourteen - 7 (Corporate Surplus Distributions) Groman Ltd. is a Canadian controlled private corporation whose shareholders are all individ- uals. On December 31 of the current year, the Company's condensed Balance Sheet is as follows: Total Assets $62,000 Liabilities $22,000 Shareholders' Equity: 500 Preferred Shares (Paid Up Capital) $11,000 600 Common Shares (Paid Up Capital) 15,600 Retained Earnings 13,400 40,000 Total Equities $62,000 Any dividends paid or deemed to be paid by Groman Ltd. would be non-eligible. Required: Discuss the tax consequences of each of the following independent transactions. Tax consequences would include the increase or decrease in the individual shareholder's Taxable income, any change in the adjusted cost base and/or PUC of any shares that are still in the hands of the individual shareholder after the described transaction(s), and any federal dividend tax credits that result from the described transaction(s). A. () A long-term debtholder has agreed to convert $10,000 of his debt to 500 Preferred Shares, with a Paid Up Capital (PUC) of $11,000. This conversion does not qualify for the ITA 51 rollover that is described in Chapter 17 of the text. (ii) After the conversion described in Ali), a different shareholder, with 250 Preferred Shares, sold them for $5,500 in an arm's length transaction. His shares cost $4,100 a number of years ago B. The Company declared and distributed a 5 percent stock dividend on the Common Shares. An addition of $780 was made to Paid Up Capital, with Retained Earnings reduced accordingly. C. In return for assets with a fair market value of $17,500, the Company issued a demand note for $12,000 and 250 fully paid Preferred Shares having a per share Paid Up Capital equal to those currently outstanding. D. An investor owns 100 of the Common Shares. They were purchased at a price of $15 per share. The Company redeems these shares at a price of $32 per share