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. Farnsworth’s shares will be reduced to \$160,000 (\$323,000 - \$163,000). • The ACB of Mr. Farnsworth’s 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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