Zhao Inc. has 50,000 shares of common stock outstanding which were issued for total proceeds of $450,000. On November 30, 2020, a creditor holding debt with a carrying value of $100,000 agrees to take 10,000 newly issued common shares in order to settle the debt obligation. At the time of this exchange, the shares are trading for $11.25 per share. Mr. Kai owns 1,000 shares in Zhao Inc, which he purchased on the market for $10 on January 15, 2020. What is the amount of the deemed dividend to Mr. Kai?

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The Answer of Zhao Inc. has 50,000 shares of common stock outstanding which were issued for total proceeds of $450,000. On November 30, 2020, a creditor holding debt with a carrying value of $100,000 agrees to take 10,000 newly issued common shares in order to settle the debt obligation. At the time of this exchange, the shares are trading for $11.25 per share. Mr. Kai owns 1,000 shares in Zhao Inc, which he purchased on the market for $10 on January 15, 2020. What is the amount of the deemed dividend to Mr. Kai?

Zhao Inc Has 50,000 Shares of Common Stock Outstanding Which Were