John Smurt Owns 80 Percent of the Common Shares of Smurt

John Smurt owns 80 percent of the common shares of Smurt Ltd. John's shares have an adjusted cost base of $600,000. The Smurt common shares have a total PUC of $1,000,000, and a total fair market value of $2,500,000. Using the provisions of ITA 86, John exchanged his shares for cash of $600,000 and preferred shares with a legal stated capital and fair market value of $1,400,000. What is the adjusted cost base of John's preferred shares?

A) Nil.
B) $250,000.
C) $1,400,000.
D) $650,000.