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Maggie incorporated MagDesigns Co. in the fall of 2012 with an initial investment of $10,000 in exchange for 1,000 common shares. MagDesigns has a corporate
Maggie incorporated MagDesigns Co. in the fall of 2012 with an initial investment of $10,000 in exchange for 1,000 common shares. MagDesigns has a corporate taxation year-end of December 31. MagDesigns grew to be very successful, generating business profits well in excess of the required cash to run operations or to pay dividends and a salary to Maggie. Due to this, MagDesigns invested their excess cash in investments that were held for a long period of time and were thus considered capital property. These investments generated the following capital gains and losses over the period of 2012 to 2018: Year Transaction Amount 2014 Capital Gain $50,000 2015 Capital Loss ($25,000) 2016 Capital Gain $15,000 2018 Capital Loss ($75,000) 2018 Capital Gain $30,000 During the 2013-year, Maggie's mother, Fibie, invested in MagDesigns, to help out with the required startup capital and because she saw the potential in MagDesigns. Fibie invested $75,000 for 500 newly issued common shares of MagDesigns. During the 2017 year, external investors began to gain interest in MagDesigns and offered to subscribe for 750 common shares for a price of $500,000. Maggie opted to accept their offer and MagDesigns issued the 750 common shares to the external investors. This transaction did not result in an acquisition of control event for MagDesigns. Prior to the investment by the external investors, MagDesigns paid a capital dividend of $10,000 to Maggie and Fibie in proportion to their shareholdings. In 2019 Maggie decided it was time for her to stop the business and in discussions with the external investors, opted to sell the assets of the business to the external investors for a capital gain of $2,500,000. No other capital gains or losses were incurred during the 2019 year. After selling the business MagDesigns was to be wound-up and the assets of the Company distributed to the shareholders in proportion to their shareholdings. At the time of sale, the fair market value of the remaining assets of MagDesigns was $13,000,000 and the liabilities were $2,500,000. Required: 1. Calculate the paid-up capital and adjusted cost base of the shares of MagDesigns to each of the shareholders (3 marks). 2. Capital the capital dividend account balance at the time of sale (4 marks). 3. Calculate the total taxable dividend to be paid to the shareholder group (2 marks). Maggie incorporated MagDesigns Co. in the fall of 2012 with an initial investment of $10,000 in exchange for 1,000 common shares. MagDesigns has a corporate taxation year-end of December 31. MagDesigns grew to be very successful, generating business profits well in excess of the required cash to run operations or to pay dividends and a salary to Maggie. Due to this, MagDesigns invested their excess cash in investments that were held for a long period of time and were thus considered capital property. These investments generated the following capital gains and losses over the period of 2012 to 2018: Year Transaction Amount 2014 Capital Gain $50,000 2015 Capital Loss ($25,000) 2016 Capital Gain $15,000 2018 Capital Loss ($75,000) 2018 Capital Gain $30,000 During the 2013-year, Maggie's mother, Fibie, invested in MagDesigns, to help out with the required startup capital and because she saw the potential in MagDesigns. Fibie invested $75,000 for 500 newly issued common shares of MagDesigns. During the 2017 year, external investors began to gain interest in MagDesigns and offered to subscribe for 750 common shares for a price of $500,000. Maggie opted to accept their offer and MagDesigns issued the 750 common shares to the external investors. This transaction did not result in an acquisition of control event for MagDesigns. Prior to the investment by the external investors, MagDesigns paid a capital dividend of $10,000 to Maggie and Fibie in proportion to their shareholdings. In 2019 Maggie decided it was time for her to stop the business and in discussions with the external investors, opted to sell the assets of the business to the external investors for a capital gain of $2,500,000. No other capital gains or losses were incurred during the 2019 year. After selling the business MagDesigns was to be wound-up and the assets of the Company distributed to the shareholders in proportion to their shareholdings. At the time of sale, the fair market value of the remaining assets of MagDesigns was $13,000,000 and the liabilities were $2,500,000. Required: 1. Calculate the paid-up capital and adjusted cost base of the shares of MagDesigns to each of the shareholders (3 marks). 2. Capital the capital dividend account balance at the time of sale (4 marks). 3. Calculate the total taxable dividend to be paid to the shareholder group (2 marks)
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