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J Question 83 (29 minutes) [Chapter 15] |_ Your client, I.M. Dunn, a Canadian resident, owned all of the issued shares of Beenthere Dunnit Ltd. (BDL), which carries on an electrical service business. The taxation year-end of the corporation was September 30. On your advice, he agreed to sell all of the assets of the company (except the cash) to one purchaser for $1,215,000. The sale was eifective September 30, 2019. In the 2019 taxation year, the business broke even for tax purposes. The following was the balance sheet for BDL with the fair market value (FMV) of assets as indicated. Beeutliere Dunnit Ltd. BALANCE SHEET As at September 30, 2019 Assets FMV Current: Cash 5 74,000 Marketab1e securities 25,000 5 15.000 Accounts receivable M Less: reserve for doubtful debts 6 000 170,000 172,000 Inventories. at cost 23 0.000 240.000 5 512,000 Property and plant Land, at cost $0,000 110.000 Buildings & equipment, at cost (Note 1) M Less accumulated amortization 290,000 460,000 490,000 IntangibIes, at cost (Note 1) w Less accumulated amortization 57 500 42 500 188,000 ELQELiihl 3.215.051} Liabilities & Shareholder's Equity Current liabilities S 208,000 Future income taxes 20,000 shareholder's eeuiw Common share capital Authorized 7 50,000 shares Issued 7 1,000 shares S 1,000 Retained earnings (Note 2) 832 500 833 500 W Additional Information: 1. The tax values of all assets are identical to amounts for book purposes, except for the building and equipment and the intangibles. The following pertains to these assets: Cost Building $600,000 Equipment =i W Intangiblesiclass 14.1 W UCC $304,000 76 000 W 5.1m FMV $42 3,000 67 000 W W The intangibles consist of a client list that was acquired in 2016. The fair market value of the client 11st is $120,000 The fair market value of goodwl is $68,000. As of the balance sheet date, the non-eligible RDTOH balance for the company is $13,000. The CDA balance is $12,000. |_ _l |_ 3. BDL pays corporate tax at a 13% rate on active business income eligible for the small business deduction and at a 40% rate on any other income, before the 1073\".) additional refundable tax on investment income. BDL has a GRIP balance of NH. at September 30, 2019. 4. BDL and the purchaser elected under section 22 with respect to the accounts receivable. 5. The cost of the BDL shares to I.M. Dunn was $1,000. Required: (a) Compute the amount available for distribution to Mr. Dunn on the sale of assets. (22 minutes) (b) Determine the components of the distribution to Mr. Dunn on a winding-up of the corporation. ( 7 min rates)
