1) Aga and Pau form Gasol Corporation. Aga transfers land that is Sec. 1231 property, with an adjusted basis of $18,000 and an FMV of $20,000 in exchange for one-half of the Gasol Corporation stock. Pau transfers equipment that originally costs $28,000 on which he has taken $5,000 in depreciation deductions. The equipment has an FMV of $20,000 and he receives one-half of the stock (FMV of stock received, $20,000) and a $5,000 short-term note. The transaction meets the requirements of Sec. 351. Which statement below is correct?

A) There is no recognized gain or loss.

B) Pau recognizes a $2,000 Sec. 1231 gain and Aga recognizes $5,000 as ordinary income.

C) Aga recognizes no gain and Pau recognizes $2,000 as ordinary income

D) Aga recognizes a $2,000 Sec. 1231 gain and Pau recognizes a $5,000 Sec. 1231 gain.

2.

Vaya transfers property with an adjusted basis of $80,000 and an FMV of $90,000 to a newly formed corporation in a Sec. 351 exchange. Vaya receives stock with an FMV of $85,000 and a short-term note with a $5,000 FMV. Vaya's basis in the stock is

A) $95,000.

B) $90,000.

C) $85,000.

D) $80,000.