ITA 880 Problem 6 J. Tilkenhurst Limited (JTL) is a Canadian-controlled private corporation which was started 10 years ago by Mr. Santosh Prasad with an initial investment in common shares of $18,000. Mr. Prasad has decided that it's time to retire and move to his retirement home in Saskatoon, Saskatchewan. Therefore, in January 2021 Mr. Prasad wishes to have JTL sell the assets to a corporate purchaser at their fair market value and then wind up JTL. He would like your advice on how much capital he would have to invest if he wound up JTL, and he would like your advice on whether he should instead retain JTL. the resulting net cash as at the intended date of the winding up: The following is a projected tax balance sheet prior to the sale of the assets and the distribution of J. Tilkenhurst Limited BALANCE SHEET As at December 31, 2020 Cash $ 15,000 Accounts receivable. Less: reserve for doubtful accounts $60,000 5,000 55,000 Inventory Marketable securities Land Building - UCC Equipment - UCC. Customer list - UCC 110,000 26,000 85,000 23,000 10,000 20,600 $344,600 Liabilities. Future income taxes Common shares (PUC) Other surplus $ 45,000 41,000 18,000 240,600 $344,600 Additional Information (1) Assets Cost FMV Accounts receivable Inventory. Marketable securities Land Building Equipment Customer lists $ 60,000 $ 52,000 $110,000 $127,000 $ 26,000 $ 26,000 $ 85,000 $150,000 $ 66,000 $ 97,000 $ 30,000 $ 6,000 $ 42,453 $ 70,000 116,850 Ch. 16/Study Guide - Assignment Problems The books of account do not reflect unrecorded goodwill with an estimated fair market value of $60,000. This is in addition to the customer lists. The accounts receivable are to be sold to a factoring company. Santosh is in the top personal tax bracket in 2020 and expects to be in that bracket in 2021 as well. After that he expects his retirement income be approximately $100,000 per year. The customer lists were purchased in 2015. The company has a non-eligible RDTOH balance of $6,000, a capital dividend account balance of $12,000, and no GRIP. The provincial corporate tax rate for income eligible for the small business deduction is 4% and 12% for income above the small business deduction limit. For the next meeting you agree that you will: (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend. ITA 880 Problem 6 J. Tilkenhurst Limited (JTL) is a Canadian-controlled private corporation which was started 10 years ago by Mr. Santosh Prasad with an initial investment in common shares of $18,000. Mr. Prasad has decided that it's time to retire and move to his retirement home in Saskatoon, Saskatchewan. Therefore, in January 2021 Mr. Prasad wishes to have JTL sell the assets to a corporate purchaser at their fair market value and then wind up JTL. He would like your advice on how much capital he would have to invest if he wound up JTL, and he would like your advice on whether he should instead retain JTL. the resulting net cash as at the intended date of the winding up: The following is a projected tax balance sheet prior to the sale of the assets and the distribution of J. Tilkenhurst Limited BALANCE SHEET As at December 31, 2020 Cash $ 15,000 Accounts receivable. Less: reserve for doubtful accounts $60,000 5,000 55,000 Inventory Marketable securities Land Building - UCC Equipment - UCC. Customer list - UCC 110,000 26,000 85,000 23,000 10,000 20,600 $344,600 Liabilities. Future income taxes Common shares (PUC) Other surplus $ 45,000 41,000 18,000 240,600 $344,600 Additional Information (1) Assets Cost FMV Accounts receivable Inventory. Marketable securities Land Building Equipment Customer lists $ 60,000 $ 52,000 $110,000 $127,000 $ 26,000 $ 26,000 $ 85,000 $150,000 $ 66,000 $ 97,000 $ 30,000 $ 6,000 $ 42,453 $ 70,000 116,850 Ch. 16/Study Guide - Assignment Problems The books of account do not reflect unrecorded goodwill with an estimated fair market value of $60,000. This is in addition to the customer lists. The accounts receivable are to be sold to a factoring company. Santosh is in the top personal tax bracket in 2020 and expects to be in that bracket in 2021 as well. After that he expects his retirement income be approximately $100,000 per year. The customer lists were purchased in 2015. The company has a non-eligible RDTOH balance of $6,000, a capital dividend account balance of $12,000, and no GRIP. The provincial corporate tax rate for income eligible for the small business deduction is 4% and 12% for income above the small business deduction limit. For the next meeting you agree that you will: (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend
