Holmes, Watson, and Moriarty form Sherlock Corporation with the following consideration:

Adjusted Basis FMV

From Holmes:

Cash $120,000 $120,000

Inventory 130,000 90,000

From Watson:

Land & Building $140,000 $180,000

From Moriarty:

Legal & Accounting Services to

incorporate $ 0 $ 50,000

Sherlock issues 500 shares of stock. Holmes receives 250 shares, Moriarty receives 50 shares, and Watson receives 200 shares plus $50,000 cash.

a. For each shareholder, indicate any gain, loss or income and its classification.

HOLMES

WATSON

MORIARTY

b. What is Watson's basis in her Sherlock stock?

c. What is Sherlock's basis in the inventory?

In the land & building?

d. What is Moriarty's basis in his Holmes stock?