Assume Donna and Dianne each contribute property to a corporation and they each receive 50% of the common stock. Donna contributes a building with a basis of $200,000 and a fair market value of $1,200,000. Dianne contributes inventory and other assets with a basis of $600,000 and a fair market value of $1,000,000. Donna’s building has a mortgage of $200,000 that the corporation assumes. 

Questions

Do either Donna or Dianne recognize any gain on the transaction? 

What is the basis of their stock? 

What if immediately prior to the transaction, Donna borrowed 10,000 to buy her boyfriend a present and the corporation also assumed the $10,000 of debt? 

Finally, in the original facts, without the additional $10,000 borrowing, assume that the fair market value of Donna’s building was $1,500,000 her basis was still 200,000 and there was a $500,000 mortgage that the corporation assumed. Would the answers change? If so, to what?