$\backslash$table$[[,$Tax Cost,FMV$],[$Accounts Receivable,$$186,000,$$$161,$xxx$],[$Inventory$,368,000,392,000],[$Furniture and Fixtures,$71,000,87,000],[$Machinery $($Capital Cost $=$$$302,000),275,000,314,000],[$Land$,210,000,432,000],[$Building $($Capital Cost $=$$$656,000),579,000,713,000],[$Goodwill$,$Nil,$275,000],[$Total$,$$$1,689,000,$$$2,374,$xxx$],[$Liabilities$,(119,000),(119,000)],[$Net Business Assets $($Owner$\text{'}$s Equity$),$$$1,570,000,$$$2,255,$xxx$]]$

Frank Aquali carries on a sole proprietorship business under the registered name Aquali Proprietors. Mr$.$ Aquali has been very fortunate and the business has grown rapidly. Since he no longer needs all of the income that is produced by the business, he would like to incorporate the business to a new corporation in which he will be the sole shareholder. The new corporation would be named Aquali Ltd$.$ and would have a December $31$ taxation year end.

On January $1,20$XX$,$ the tax attributes $($ACB$,$ UCC etc$)$ and FMV of the assets and liabilities of Aquali Proprietors are as follows:

The sale$/$transfer of the Aquali Proprietors$$ business assets to Aquali Ltd$.$ will take place on January $1,20$XX$,$ and the provisions of ITA $85(1)$ will be used to minimize any income tax implications of the incorporation of the business. Aquali Ltd$.$ will assume the liabilities of Aquali Proprietors and, in addition, will issue $$1,225,000$ of a promissory note to Mr$.$ Aquali. With respect to share consideration, the new Company will issue preferred shares with a FMV of $$200,000$ and common shares with a FMV of $$800,000.$

All of the shares issued by Aquali Ltd$.$ as part of this rollover will be issued to Mr$.$ Aquali. Aquali Ltd$.$ does not have a balance in its GRIP account for any of the taxation years under consideration.

Required:

A$.$ Determine whether the Accounts Receivable should be transferred using the provisions of ITA $85.$ Explain your conclusion and, if you recommend that ITA $85$ should not be used, indicate the appropriate alternative treatment. $(5$ marks$)$

B$.$ Without regard to your conclusions in Part A$,$ assume that all of the business assets are transferred to the new corporation using the provisions of ITA $85(1).$ Indicate the minimum elected amounts for each property. $(7$ marks$)$

C$.$ Assume the sale$/$transfer of all of the property of the business is made using the provisions of ITA $85(1),$ and that Mr$.$ Aquali will elect the amount that you have determined in Part B$.$

i$.$ Determine the ACB of the consideration received by Mr$.$ Aquali. $(5$ marks$)$

ii$.$ In addition, determine the PUC of the share consideration. $(8$ marks$)$

D$.$ Indicate the income tax consequences to Mr$.$ Aquali if the preferred and common shares received as consideration were:

i$.$ immediately sold for their FMVs; or alternatively. $(4$ marks$)$

ii$.$ immediately redeemed by the new corporation at their FMV$.$ The non$-$eligible dividend gross$-$up is $15\%.(11$ marks$)$