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It is Canada Income Tax, all information approved, thank you for help! Assignment Problem Seventeen - 9 (Sale Of Assets vs. Shares) Mr. Nathan Naper
It is Canada Income Tax, all information approved, thank you for help!
Assignment Problem Seventeen - 9 (Sale Of Assets vs. Shares) Mr. Nathan Naper is the president and only shareholder of Nepean Ltd., a Canadian controlled private corporation. The company's fiscal year ends on December 31. Mr. Naper established the company 15 years ago by investing $265,000 in cash. There have been no other shares issued since then. Mr. Naper is considering selling the corporation and, in order to better evaluate this possibility, he has prepared a special Statement of Assets. In this special statement, comparative disclo- sure is provided for the values included in his accounting records, values that are relevant for tax purposes, and fair market values. This statement is as follows: 1 Cash Accounts Receivable Inventories Land Building (Note One) Equipment (Note Two) Goodwill Totals Nepean Ltd. Statement of Assets As At January 1, 2020 Accounting Net Book Value $ 54,500 406,000 869.750 201,500 538,000 434,000 Nil $2,503,750 Tax Value $ 54,500 406,000 869,750 201,500 469,250 294,000 Nil $2,295,000 Fair Market Value $ 54,500 372,250 976,000 405,000 2,061,000 171,250 811,000 $4,851,000 Note One Mr. Naper built this building on the land for a total cost of $1,281,000. Note Two The equipment had a cost of $807,500. At the same time that this statement of Assets was prepared, a similar Statement of Equities was drawn up. This latter statement contained the following accounting and tax values: Current Liabilities Loan From Shareholder Omit Future lacome Tax Liability Common Shares- No Par Capital Dividend Account Omit other Income Retaines Omit Retained Earnings Totals Accounting Book Value $ 697,000 137,500 542,000 265,000 N/A NA 862,250 $2,503,750 PUC Tax Value $ 697,000 137,500 N/A 265,000 164,500 1,031,000 N/A $2,295,000 CDA open balance In addition to the information included in the preceding statements the following other informa- tion about the company is available: The company bas available non-capital loss carry forwards of $83,000. Omit The company has available a net capital loss carry forward of $129,650 [(1/2)($259,300)). Nepean Ltd. is subject to a provinsial tax rate of 3 percent on income that qualifies for the federal small business deduction and 14 percent on income that does not qualify for this deduction On December 31, 2010, the company has no balance in either its RDTOH account or its General Rate Income Pool (GRIPLaceount. Nepean Ltd. is not a qualified small business corporation. Mr. Naper has received two offers for his company, and he plans to accept one of them on January 2, 2020. The first offer involves a cash payment of $3,508,000 in return for all of the shares of the company. Alternatively, another investor has expressed a willingness to acquire all of the assets, including goodwill, at a price equal to their fair market values. This investor would assume all of the liabilities of the corporation and has agreed to file an ITA 22 election with respect to the Accounts Receivable. If the assets are sold, it is Mr. Naper's intention to wind-up the corporation. Mr. Naper will have over $300,000 in income from other sources and, as a consequence, any income that arises on the disposition of this business will be taxed at the maximum federal rate of 33 percent, combined with a provincial rate of 18 percent. He lives in a province where the provincial dividend tax credit on eligible dividends is 5/11 of the gross up, and on non-eligible dividends is equal to 4/13 of the gross up. Required: Determine which of the two offers Mr. Naper should accept. Ignore the possibility that Mr. Naper might be subject to the alternative minimum tax. Assume that appropriate elec- tions or designations will bemade to minimize the taxes that will be paid by Mr. Naper. Add: Assume the company's taxes payable is $516,035 Dividend refund is $235,398 The Grip balance is $128,520 that can be designated as eligible eligible dividends. Assignment Problem Seventeen - 9 (Sale Of Assets vs. Shares) Mr. Nathan Naper is the president and only shareholder of Nepean Ltd., a Canadian controlled private corporation. The company's fiscal year ends on December 31. Mr. Naper established the company 15 years ago by investing $265,000 in cash. There have been no other shares issued since then. Mr. Naper is considering selling the corporation and, in order to better evaluate this possibility, he has prepared a special Statement of Assets. In this special statement, comparative disclo- sure is provided for the values included in his accounting records, values that are relevant for tax purposes, and fair market values. This statement is as follows: 1 Cash Accounts Receivable Inventories Land Building (Note One) Equipment (Note Two) Goodwill Totals Nepean Ltd. Statement of Assets As At January 1, 2020 Accounting Net Book Value $ 54,500 406,000 869.750 201,500 538,000 434,000 Nil $2,503,750 Tax Value $ 54,500 406,000 869,750 201,500 469,250 294,000 Nil $2,295,000 Fair Market Value $ 54,500 372,250 976,000 405,000 2,061,000 171,250 811,000 $4,851,000 Note One Mr. Naper built this building on the land for a total cost of $1,281,000. Note Two The equipment had a cost of $807,500. At the same time that this statement of Assets was prepared, a similar Statement of Equities was drawn up. This latter statement contained the following accounting and tax values: Current Liabilities Loan From Shareholder Omit Future lacome Tax Liability Common Shares- No Par Capital Dividend Account Omit other Income Retaines Omit Retained Earnings Totals Accounting Book Value $ 697,000 137,500 542,000 265,000 N/A NA 862,250 $2,503,750 PUC Tax Value $ 697,000 137,500 N/A 265,000 164,500 1,031,000 N/A $2,295,000 CDA open balance In addition to the information included in the preceding statements the following other informa- tion about the company is available: The company bas available non-capital loss carry forwards of $83,000. Omit The company has available a net capital loss carry forward of $129,650 [(1/2)($259,300)). Nepean Ltd. is subject to a provinsial tax rate of 3 percent on income that qualifies for the federal small business deduction and 14 percent on income that does not qualify for this deduction On December 31, 2010, the company has no balance in either its RDTOH account or its General Rate Income Pool (GRIPLaceount. Nepean Ltd. is not a qualified small business corporation. Mr. Naper has received two offers for his company, and he plans to accept one of them on January 2, 2020. The first offer involves a cash payment of $3,508,000 in return for all of the shares of the company. Alternatively, another investor has expressed a willingness to acquire all of the assets, including goodwill, at a price equal to their fair market values. This investor would assume all of the liabilities of the corporation and has agreed to file an ITA 22 election with respect to the Accounts Receivable. If the assets are sold, it is Mr. Naper's intention to wind-up the corporation. Mr. Naper will have over $300,000 in income from other sources and, as a consequence, any income that arises on the disposition of this business will be taxed at the maximum federal rate of 33 percent, combined with a provincial rate of 18 percent. He lives in a province where the provincial dividend tax credit on eligible dividends is 5/11 of the gross up, and on non-eligible dividends is equal to 4/13 of the gross up. Required: Determine which of the two offers Mr. Naper should accept. Ignore the possibility that Mr. Naper might be subject to the alternative minimum tax. Assume that appropriate elec- tions or designations will bemade to minimize the taxes that will be paid by Mr. Naper. Add: Assume the company's taxes payable is $516,035 Dividend refund is $235,398 The Grip balance is $128,520 that can be designated as eligible eligible dividendsStep by Step Solution
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