Mrs. Dancer owned 100 common shares in Dancers Unlimited Incorporated (“Dancers”). Dancers
reorganized its capital structure during the year. In the course of this reorganization, Mrs. Dancer
exchanged all of her common shares for cash and preferred shares. Mrs. Dancer’s common shares
had an adjusted cost base (ACB) of $10,000, paid-up capital (PUC) of $5,000 and a fair market
value (FMV) of $55,000. As consideration for the exchange of her common shares, Mrs. Dancer
received cash of $5,000 and preferred shares with a fair market value and legal stated capital of
$50,000.
Required:
a) What is the adjusted cost base and paid-up capital of the preferred shares received by Mrs. Dancer as partial consideration for the exchange of her common shares?
b) What are the tax implications to Mrs. Dancer of the exchange of her common shares?
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