Midterm Problem

Individual A$,$ Individual B$,$ and Individual C form ABC Corporation by contributing the following items in exchange for stock in ABC Corporation:

Adjusted Basis Fair Market Value

of property given of property given Shares of Stock Received

Individual A:

Cash $ $15,000$ $$15,000$

Fixtures $150,000210,0002250$ shares

Individual B:

Land $$200,000$ $$900,0006000$ shares

Mortgage $300,000(300,000)$

Individual C:

Services $$0$ $ $100,0001000$ shares

Additional information:

$$ Individual C has a PhD in immunology and leads research and development for the corporation.

Questions:

a$.$ How much gain, loss, or income does Individual A recognize from contributing cash and fixtures in exchange for $2250$ shares of stock?

b$.$ What is Individual A$$s basis in ABC stock?

c$.$ How much gain, loss or income does Individual B recognize from contributing land? $($Note: ABC will assume the mortgage$).$

d$.$ What is Individual B$$s basis in ABC stock?

e$.$ How much gain, loss, or income does Individual C recognize from receiving stock in exchange for services?

f$.$ What is Individual C$$s basis in ABC Stock?

g$.$ What basis does ABC corporation have in:

$$ Fixtures $($contributed by Individual A$)$

$$ Land $($contributed by Individual B

h$.$ New scenario: Assume that the services performed by Individual C were valued at $$500,000$; therefore, Individual C received $5,000$ shares of stock. Thus, ownership would now be:

Individual A $2,250$ shares

Individual B $6,000$ shares

Individual C $5,000$ shares

Under this new scenario:

$$ How much gain, loss, or income would Individual A recognize?

$$ How much basis would Individual A have in ABC stock?

i$.$ In one or two sentences, explain why the answers under the new scenario $($i$.$e$.$ when Individual C$$s services are more highly valued$)$ are different from the original problem.