Luke owns undeveloped land (a capital asset, FMV $100,000 and adjusted basis $40,000) and transfers the land to the newly created Solo Corporation in exchange for the alternative consideration listed below. Assume there is no Original Issue Discount (OID) for any debt and Luke is the sole shareholder.

1. What are the income recognition and basis consequences to Luke and Solo Corporation on the different exchanges listed below?

1. Luke receives 20 shares of common stock (FMV $20,000) and 80 shares of $1,000 FMV preferred stock paying 8% cumulative dividends.

ANSWER: Luke:

Solo Corporation:

1. Luke receives 20 shares of common stock (FMV $80,000) and warrants for Solo stock (FMV $20,000).

ANSWER: Luke:

Solo Corporation:

1. Luke receives 20 shares of common stock (FMV $20,000) and $80,000 principal amount (and FMV) of 20-year, registered bonds paying half the principal after 10 years and the rest at maturity (with 8% interest payable annually).

ANSWER: Luke:

Solo Corporation:

1. Same as 3. above, except that Luke already owned the 20 shares of Solo Corporation common stock (acquired for $20,000 cash one year ago) and transfers the land for $100,000 in Solo Corporation bonds (principal and FMV) and the bonds pay 8% annual interest.

ANSWER: Luke:

Solo Corporation: