Luzerne Corporation acquires equipment from a shareholder contributing property as part of a qualifying Section 351 exchange and that is the only property contributed by that shareholder. The equipment has a basis to the shareholder of $40,000 and an agreed fair value of $35,000. Which of the statements below reflect the proper treatment for this contribution?

Question options:

	Luzerne Corporation will take a $35,000 basis in the equipment contributed by the shareholder unless the shareholder agrees to take a $35,000 basis in the stock.
	Luzerne takes a $40,000 basis in the equipment
	The shareholder's stock basis is $40,000