When Banff Ltd. was formed, it issued 265,000 shares for $20 per share. Sachiko Nakajima purchased 30,000 of these shares at issuance. In 2021, a creditor of Banff Ltd. has agreed to accept 35,000 new Banff Ltd. shares in settlement of debt with a face value of $800,000. At this time, the shares are valued at $25 per share. Shortly after this debt settlement, in 2021, Sachiko sells all of her shares to an arm’s length party for $28 per share.

Required: 

FIRST, describe the tax consequence(s) to all of the shareholders of Banff Ltd. as a result of the settlement of debt in exchange for new common shares. While calculations are required, ignore the dividend gross-up and tax credit in your description. 

SECOND, describe the tax consequences to Sachiko Nakajima resulting from the sale of her Banff Ltd. shares. While calculations are required, ignore the dividend gross-up and tax credit in your description. Make that you show all of your calculations and that they are properly labeled.