Tse Enterprises Ltd. (TEL) has carried on a retail business for about 20 years. Joe Tse, age 55, acquired all 100 common shares of TEL on incorporation and paid $1 each for these shares. On November 30th Joe intends to have TEL transfer its business assets and liabilities to a new corporation, TSE Inc. (TSE), in which he wants to have control. Three of his four children, all in their 20s, are active in the business and have each already subscribed for 100 common shares of TSE at $1 per share. Joe wants to make sure he can still earn income for his retirement, even if the business doesn't prosper under the management of his children. In particular, he wants to keep the land and building in TEL so he can earn rental income and reduce the amount that TSE owes TEL. TEL has $3,000 of net capital losses that he would like to use on the transfer. The following are the projected balance sheet of TEL and certain additional information: Projected Projected Balance Sheet Fair Market Value Assets Nov 30, 2018 Nov 30, 2018 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,000 $ 12,000 Accounts receivable (Net of $10,000 allowance) . . . . . 110,000 102,000 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 100,000 Shares of Supplyco Ltd.(1) . . . . . . . . . . . . . . . . . . . . . 36,000 40,000 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000 103,000 Buildings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 144,000 Equipment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 60,000 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 $464,000 $651,000 Liabilities(3) Bank loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,000 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Mortgage on land and building . . . . . . . . . . . . . . . . . . 84,000 $151,000 Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,900 $464,000 Notes to Balance Sheet (1) These shares represent a 2% ownership in the common shares of Supplyco Ltd. which is a small business corporation. (2) Fixed assets are recorded at original cost less accumulated financial accounting depreciation. No single piece of equipment is worth more than its cost. Tax data follow: Original cost UCC Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,000 $42,000 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 57,000 (3) Liabilities are to be assumed by the corporation. In addition, TEL will receive as consideration for the transfer of assets the maximum in notes payable that it can receive without negative tax consequences plus voting retractable preferred shares. Joe would like your advice on the transfer of the assets of TEL to TSE, including the consideration he should receive. His controller also wants to know what the tax values of the assets will be in TSE. Before you meet with Joe you want to: (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend.