Solution%20to%20Assignment%20Problem%20Ch14%28II%29docx

Solution%20to%20Assignment%20Problem%20Ch14%28II%29docx -...

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Unformatted text preview: Solution to Assignment Problem Fourteen - 4 The December 31, 2010 balance in the capital dividend account is calculated as follows: 1992 Capital Gain [(1/4)($462,000 - $225,000)] $ 59,250 1995 Life Insurance Proceeds 162,000 2002 Capital Gain [(1/2)($220,000 - $150,000)] 35,000 2004 Capital Dividend Received 26,000 2007 Franchise Sale [(3/4)($320,000 - Nil)(2/3)] 160,000 2008 Capital Dividend Paid ( 16,000) Balance December 31, 2010 $426,250 Solution to Assignment Problem Fourteen - 5 Case 1 To the extent of the $163,000 PUC reduction, the liquidating dividend will be treated as a tax free distribution to Mr. Farnsworth. However, there will be tax consequences related to this distribution: The PUC of Mr. Farnsworths shares will be reduced to $160,000 ($323,000 - $163,000). The ACB of Mr. Farnsworths shares will be reduced to $299,000 ($462,000 - $163,000). The $97,000 ($260,000 - $163,000) excess of the distribution over PUC will be an ITA 84(4) deemed dividend, subject to either the eligible or non-eligible dividend gross up and tax credit procedures. As it will be taxed as a subject to either the eligible or non-eligible dividend gross up and tax credit procedures....
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Solution%20to%20Assignment%20Problem%20Ch14%28II%29docx -...

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