Lou incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporations stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases:

FMV Tax-Adjusted Basis

Inventory $ 32,000 $ 16,000

Building 240,000 160,000

Land 368,000 480,000

Total $640,000 $656,000

The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporations stock received in the exchange was $540,000. The transaction met the requirements to be tax-deferred under 351.

Note: Assume the corporation assumed a mortgage of $740,000 attached to the building and land. Assume the fair market value of the building is now $400,000 and the fair market value of the land is $848,000. The fair market value of the stock remains $540,000.

a. How much, if any, gain or loss does Lou recognize on the exchange assuming the revised facts?

b. What is Lou's tax basis in the stock she receives in exchange?