Problem 20 (Text: Ch. 6, 13) Ms. Sparkle Diamond is now the sole shareholder and active Chief Executive Officer of Sparkle’s Jewellers Inc. No other member of her family owns any shares in the corporation. The corporation is not involved in the business of lending money. The corporation has a December 31 year end. During the current fiscal year, the following loans were recorded on the books of Sparkle’s Jewellers Inc. (a) On April 1, the corporation loaned Sparkle $400,000 to buy all of the shares owned by an unrelated third party shareholder. These shares represent 40% of the outstanding common shares of Sparkle’s Jewellers Inc. Sparkle held the remaining 60% of the outstanding common shares prior to this transaction. No interest was charged to Sparkle on this loan. The loan agreement that was signed at the time the loan was granted stipulated that Sparkle is required to make equal annual instalments of $80,000 over each of the next five years. (b)
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