Individuals Adam and Bonnie form an S Corporation with Adam contributing cash of $100,000 for a 50% interest and Bonnie contributing appreciated property with an A/B of $40,000 and a FMV of $100,000 for a 50% interest.

a. What are Bonnies and Adams initial basis in their stock?

b. The corporation does not experience any income or loss during the first year. At the end of the first year, it sells the property contributed by Bonnie for $120,000. How does this change the bases of the shareholders?

c. At the beginning of the second year, the corporation liquidates and distributes $110,000 cash to each shareholder. What gain or loss would each recognize on the liquidation?