Deal-Or-No-Deal Inc. is a Canadian-controlled private corporation which will be wound up on January 1, 2020 by its only shareholder, Mr. Howie, who purchased the shares at their paid-up capital amount of $10,000. As at December 31, 2019, its balance sheet appears as follows:

Deal-or-No Deal Inc.

Balance Sheet

December 31, 2019

Assets Liabilities

Cash $ 2,500 Bank loan $ 54,000

Accounts receivable (net of 8,750 Future income taxes 5,000

allowance of $ 1500)

(F.M.V. $ 7,500)

Marketable securities 14,250

(F.M.V. $ 32,000)

Inventories at cost 22,250 Total 59,000

(F.M.V. $ 15,500)

Land at cost 11,000

(F.M.V. $ 45,000)

Building at cost 35,000 Shareholder’s equity

(UCC $ 7,500; Common shares (P.U.C.) 10,000

F.M.V. $ 95,000) Retained earnings 69,750

Equipment at cost 45,000

(UCC $ 22,000;

F.M.V. $ 10,000)

Goodwill (FMV $ 47,500) ___-____ _______

Total $ 138,750 $ 138,750

Additional Information:

1. The balance in the corporation’s capital dividend account was $ 4000 as at December 31, 2019 prior to the wind-up.

2. The corporation pays corporate tax at the rate of 13% on the first $500,000 of active business income, 27% on business income not eligible for the small business deduction and an initial 40% rate on investment income, plus the additional refundable tax of 10 2/3% on investment income. The federal refundable Part I tax rate is 30.67%. The balance in the company’s GRIP is nil at December 31, 2019.

3 The buyer and seller elected under section 22 with respect to accounts receivable.

4. Mr. Howie’s ACB of his common shares is equal to the P.U.C. of the shares.

On January 1, 2020 the assets are to be liquidated, liabilities paid and the net proceeds distributed to Mr. Howie, effective January 1, 2020.

REQUIRED:

Insert your responses to the following questions in the blank space indicated. (you need not show your detailed calculations)

1.The deemed dividend on winding up will be $ ________________

2.The taxable dividend on winding up will be $ ________________

3. The capital dividend account dividend on winding up is $ ________________

4.The amount of income tax payable by the corporation on the winding up, after deducting any current year refundable Part I tax, is $ _________________

5.The gross amount of the RDTOH receivable prior to any deemed dividend on winding up is $ _______________

6.Mr. Howie’s taxable capital gain (allowable capital loss) on the disposition of his shares after winding up will be $ _______________

7. The total funds available for distribution on winding up are $ ________________

Answer rating: 100% (QA)

Question 1 The deemed dividend on winding up 174750 2 The taxable dividend on winding up 170750 3 The capital dividend account dividend on winding up ... View the full answer