A and B, two individuals, formed X Corporation on January 1 of Year 1. A contributed two properties to X: (i) a Capital Asset (CA) purchased two years ago, with a cost (basis) of $500 and a current fair market value (FMV) of $1,000, but subject to $100 liability (which had a business purpose and was assumed by X Corp.) and (ii) an ordinary asset, also acquired two years ago, with a basis of $900 and a FMV of $1,000. B contributed $1,200 cash and $400 of management services. A received 1,600 shares of X stock (valued at $1,600) and an X note (bond treated as boot) valued at $300, which paid $30 of interest every December 31, and B received 1,600 shares of X stock in the exchange.

1.What income, gain or loss, if any, does A recognize as a result of the January 1 exchange?

2.What gain, loss or income, including character, would A recognize, if any, if A sold 800 of his or her X shares to D (an unrelated person) on July 1, Year 1, for $700?

3.What income, gain or loss, if any, including character, does B recognize as a result of the January 1 exchange?

4.What is X basis in the capital asset (CA) contributed by A?

5.Based solely on all the facts above, and assuming X had $1,000 of revenue in Year 1, what would be X taxable income for year 1?