Subpump Limited is an active business corporation owned 50% by Simpson and 50% by Clowes. The owners have been attempting to sell the company for several years and have recently received an offer from a serious buyer.
As of December 31, 20X1, the company€™s financial position was as follows:

Additional information
1. Relevant asset values are as follows:

2. On December 31, 20X1, the company had a balance of $9,000 in its capital dividend account. The balances in the RDTOH and GRIP accounts were NIL.
3. Each owner acquired his shares of Subpump 10 years ago for $50,000.
4. Clowes once owned shares of another small business corporation. He sold them last year and realized a capital gain of $800,000. He claimed the maximum capital gain deduction at that time.
5.The purchaser has stated two alternatives in his purchase offer:
€¢ A purchase of all assets at fair market value and an assumption of all liabilities. The balance will be paid in cash immediately.
€¢ A purchase of the shares for $340,000 in cash.
6. Both shareholders want to go their separate ways after the sale. Because of this,
Clowes thinks the sale of shares is the best alternative, as it avoids additional tax costs.
7. Both shareholders are in a 45% marginal tax bracket. Both expect to remain in that bracket in the future. The combined (federal and provincial) marginal tax rate for both shareholders is 28% on eligible dividends and 35% on non-eligible dividends received (net of the dividend tax credit) and 45% on other income. Subpump€™s tax rate is 25% on business income not subject to the small-business deduction and 15% on earnings subject to the small-business deduction. Investment income is subject to a 38% tax rate plus a 6 2„3% refundable tax.
Required:
1. Which offer should the shareholders accept? Show all calculations.
2. If the assets are sold, is there any way that the two shareholders can divide the cash remaining in the company without paying personal tax? If so, what is it?

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Assets S200,000 70,000 100,000 Accounts receivable Inventory (at cost) an Building (at cost) Accumulated capital cost allowance Equipment (at undepreciated capital cost) Goodwill (at cost) $150,000 (60,000) 90,000 40.000 30.000 $530.000 Liabilities and Shareholders' Equity Current liabilities S250,000 Shareholders equity: Common shares Retained earnings S 1,000 279.000 280,000 $530.000 Fair market Cumulative UCC eligible capital valie Inventory Land Building Equipment Goodwill S 75,000 120,000 170,000 90,000 35,000 40,000 50,000 4,000