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Solution to Assignment Problem 18-7,3

# Solution to Assignment Problem 18-7,3 - Solution to...

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Solution to Assignment Problem 18-7 Part A: A/R & Temporary Investments A/R: Tax Value \$120,000 FMV \$112,000 A Section 85 rollover would make the \$8,000 loss a disallowed capital loss The correct approach is to exclude A/R from the rollover and sell the accounts to the corporation Temporary Investments: Tax Value \$42,000 FMV \$37,000 Loss would be a disallowed capital loss Sell to an arms’ length third party and claim the capital loss Ms. Delmor could structure the Section 85 rollover to create sufficient capital gains to offset the capital loss on these investments

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Part B: Minimum Elected Values (ALL assets) Inventories: Lesser of: 1. FMV \$231,000 2. ACB \$\$220,000 \$220,000 Class 8 Assets (transfer assets individually) Lesser of Asset A : Asset B 1.FMV \$32,500 \$29,000 2.ACB \$27,000 \$33,000 3.UCC \$53,000 (53K-27K)= \$26,000 \$ 53,000 Machinery: Lesser of: 1.FMV \$273,000 2.ACB \$212,000 3.UCC \$197,000 \$197,000 Land: Lesser of: 1.FMV \$311,000 2. ACB \$150,000 \$150,000 Building: Lesser of: 1.FMV \$523,000 2.ACB \$472,000 3. UCC \$416,000 \$416,000 Goodwill (At least \$1!!!) \$149,000 Total Elected Transfer Value \$1,185,000
Part C: Allocation of Transfer Price Elected Transfer Price \$1,185,000 Less: ACB of Boot:

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