prob025 - Dividends Received 19832008 June 30th each year;...

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Problem 25 (Text: Ch. 6, 8) Mr. I.M. Smart has come to you for some tax advice concerning the sale of his shares of XYZ Ltd., a public corporation, to his wife, a friend, and to his 10-year-old son by means of a trust. As consideration for the shares, he accepted a non-interest bearing demand note. Date of sale No. of shares Sellin g price FMV at date of sale Wife. .................. Jan. 1, 2008 500 $35 $60 Friend. ............................... Mar. 1, 2008 500 55 55 Son. ................................... Apr. 1, 2008 500 40 70 Mr. Smart’s records show the following information concerning the shares: Purchases 1983 .................................................. 500 shares @ $10 1984 .................................................. 300 shares @ $15 1991 .................................................. 100 shares @ $20 1992 .................................................. 500 shares @ $30
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Unformatted text preview: Dividends Received 19832008 June 30th each year; a cash dividend of approximately 10% of fair market value. 1984 10% stock dividend which resulted in an increase in the paid-up capital of $5 per share. 2005 10% stock dividend which resulted in an increase in the paid-up capital of $5 per share. Additional Information: (1) Mr. Smart does not wish to elect not to use subsection 73(1). (2) Mr. Smarts spouse and child (by means of a trust) plan to invest the dividend income on these shares in five-year compounding 8% Guaranteed Investment Certificates. Required: (A) Explain the tax implications of the above transactions supported by all your computations. (B) If Mr. Smart had consulted you prior to these transactions, what advice would you give him to avoid the adverse tax consequence in part (A), if any?...
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This note was uploaded on 11/19/2010 for the course ACC 742 taught by Professor Sydor during the Spring '10 term at Ryerson.

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