Frank and Jessie plan to organize a corporation to operate a college textbook store, which will be named Fleecem Folios, Ltd. They will each engage in the exchanges described below. What are the tax consequences to Frank, Jessie, and Fleecem Folios that result from the formation of the corporation? Specifically, how much, if any, gain must each recognize; what is the basis to each shareholder in the stock received; and what is the corporations basis in the assets received by it?

(a)Frank will contribute 10,000 law school text books, previously held for sale to customers in the ordinary course of business, with a fair market value of $450,000 and a basis of $300,000, in exchange for 10 shares of common stock, worth $250,000. In addition, the corporation will assume $200,000 of Frank debts that are secured by a perfected purchase money security interest in the books.