Ms. Jo Regierk wants to transfer the assets of her unincorporated wholesaling business to a newly incorporated company of which she is the only shareholder. She has just received the pro forma financial statements that you prepared as at December 31, 2019 and wants to transfer the assets by January 1, 2020. Jo wants to avoid triggering any income tax on the transfer. Liabilities of the proprietorship, except for the mortgage, are to be assumed by the corporation, first, in payment for assets transferred to the corporation other than under a subsection 85(1) election and, then, in payment for assets transferred to the corporation by a subsection 85(1) election. The mortgage is to be assumed by the corporation in partial payment for the land and the building. New debt is to be issued (to the nearest $100) by the corporation to the maximum that will permit a full deferral of unrealized income on assets transferred. She will own only common shares after the transfer. The following is the pro forma balance sheet of Jo Wholesaling, as at December 31, 2019, along with expected fair market values at that time. The proprietorship has used the same asset values and depreciation for accounting and tax purposes. Jo Wholesaling (a sole proprietorship) Pro Forma Balance Sheet as at December 31, 2019 Assets Book Value FMV Cash $ 14,200 $ 14,200 Marketable securities, at cost 13,000 7,600 Accounts receivable (face value: $138,800; reserve: $10,900) 127,800 109,300 Inventory 28,400 40,400 Prepaid insurance 3,300 3,300 Land in Waterloo held for speculation, at cost 54,600 273,000 Fixed assets (see schedule below) 182,300 298,700 $423,600 $746,500 Liabilities and Proprietor's Equity 5 Bank loan $ 68,800 Accounts payable and accrued liabilities 95,100 Mortgage on land and buildings 101,600 265,500 Owner's capital 158,100 $423,600 Jo has indicated that she has recently received an unsolicited offer of $746,500 for all of the assets of his business together (without the assumption of liabilities). This amount appears to be a good indication of the fair market value of her business. Schedule of Fixed Assets Cost UCC FMV Land $ 87,400 $103,800 Class 1 (building) 60,100 $ 47,000 92,900 Class 8 (office furniture) 54,600 24,000 20,800 Class 10 (automotive equipment; no accrued capital gains on any asset) 41,200 17,500 15,300 Class 12 (computer software) 5,500 Nil 2,200 Class 14.1 (intangibles) 9,800 6,400 63,700 Required: 6 Analyze in technical detail the following issues in preparation of your advice to Jo. (a) With respect to the assets described above consider: (i) which assets should not be transferred to the corporation, with a very brief explanation of why (only 5); (ii) which assets should be transferred to the corporation, but cannot or should not be transferred to the corporation under a subsection 85(1) election, with a very brief explanation (only 5/6 ); and (iii) which assets should be transferred to the corporation under a subsection 85(1) election and the consideration that should be received for each asset so transferred. (b) Compute the adjusted cost base and the paid-up capital for tax purposes of the common share consideration, showing the technical details of your calculation of these amounts.