At the beginning of the current year, Brou Inc. sells all of its assets and pays its liabilities. Afterwards, the company has $350,000 in cash which is distributed to the sole shareholder, Mr. Daniel. Mr. Daniel purchased the shares from the former shareholder for $50,000. The PUC of the shares is $10,000. The balance in the capital dividend account is $65,000, and the company makes all appropriate elections with respect to this balance. What is the amount of the deemed dividend to Mr. Daniel?

Question

Quizplus · Accepted Answer

The deemed dividend to Mr. Daniel is calculated as follows:
Cash proceeds to shareholder = $350,000
(+/-) Adjusted cost base of shares = ($50,000)
Available capital dividend account (CDA) balance = $65,000
(-) Gross-up (for private corporation) = x2
Deemed dividend to Mr. Daniel = $340,000
Therefore, the correct answer is (D) $340,000.

At the Beginning of the Current Year, Brou Inc