Jack and Diane transfer appreciated song lyrics to Mellencamp, Inc. The lyrics are property for purposes of 351. Jack & Diane have a basis in the song lyrics of $50,000 each (aggregate of $100,000). The song lyrics have a Fair market value of $500,000 each ($1,000,000 aggregate).

In exchange for the lyrics, Mellencamp Inc., issues 10,000 shares (each) of voting common stock to both Jack & Diane. The common stock has a Fair Market Value of $40 per share ($400,000 each and $800,000 aggregate). Jack & Diane also receive one (1) share each of non-voting preferred stock with a Fair Market value of $50,000 ($100,000 in total). Additionally, they receive a corporate note payable in the amount of $50,000 each ($100,000 aggregate).

The non-voting preferred stock issued at the time of the exchange allows Jack and Diane to force Mellencamp to purchase the stock in 10 years for the fair market value at such time. The note is payable in 2 years has state reasonable interest.

Please explain why the answer choices below are as follows with clarification to the answer:

1. Jack and Diane received boot equal to $50,000 each

A. True

B. False

What would be the boot received if not $50,000?

2. Jack and Diane have recognized gain at the time of the transaction of $100,000 each.

A. True

B. False

4. Mellencamp's basis in the music lyrics at the time of the transfer is equal to:

A. $100,000

B. $200,000

C. $300,000

D. $150,000

5. Jack & Diane's basis in the note received is equal to $50,000 each

A. True

B. False

6. If Mellencamp Inc. sells song lyrics to John Cougar at the end of year 3 for the fair market value, Mellencamp Inc. will have a gain of:

A. $800,000

B. $1,000,000

C. $900,000

D. $700,000