Please solve the following and please provide explanation.

1. Provide the tax basis in each persons stock and detail the gain or loss realized and recognized by each person on their contributions to the company on August 1, 2012.

2. Calculate the amount and character of the gain recognized by Atty. Bain on the sale of his stock on April 6, 2013.

3. Calculate taxable income for the company for the year ended December 31, 2018.

On August 1, 2012, four unrelated individuals created ABC company, Inc. to produce furniture. Peter transferred two pieces of equipment, a lathe with a fair market value (adjusted basis) of $42,520 ($32,450) and a table saw with a fair market value (adjusted basis) of $37,480 ($33,500) for 320 shares of stock. Luke, a cash basis taxpayer, transferred receivables with a FMV of $30,000, land with a FMV (adjusted basis) of $40,000 ($37,500) and $75,000 of cash for 580 shares of stock. The receivables were collected in 2012. The land will be held as an investment. John transferred a building with an adjusted basis of $108,000 subject to a mortgage of $124,000 into the business for 420 shares of stock. John rented the land on which the building was located to the corporation for $11,250 per month. Erik contributed a truck with a fair market value (adjusted basis) of $37,500 ($42,400) for 115 shares of stock and cash. Atty. Bain was given 248 shares of stock for legal services in creating the company, including $9,500 for registering and issuing the stock. The company elected to adjust stock basis for unrecognized losses. Atty. Bain sold his shares to Peter on April 6, 2013 for $235 per share. On September 1, 2017, as part of an expansion, the company purchased a sander for $52,000. On December 31, 2017, Peter, Luke and John transferred from a cash basis joint venture into the company receivables with a FMV of $37,800 and a new undepreciated saw with a fair market value (adjusted basis) of $52,200 ($51,000). Each man received 150 shares of stock. $32,400 of the receivables was collected in 2018 with the remainder written off that year (the only bad debts in 2018). ABC Company Income Statement for the Year Ended December 31, 2018 $2,740,350 1,375,954 $1,364,396 Sales Cost of Goods Sold Gross Profit Operating Expenses Salaries Rent Expense Bad Debt Expense Impairment of Building Depreciation Expense Marketing Other business expenses $776,321 135,000 5,400 12,000 30,203 68,222 7,350 1,034,496 Operating Income Other Income and (Expense) Net income before tax $ 329,900 (26,990) $ 302,910 ABC Company Balance Sheet as of December 31, 2018 Cash Marketable Securities (at FMV) Accounts Receivable Inventory Total Current Assets Property, Plant and Equipment Less: Accumulated Depreciation Total Assets $ 97.846 48,000 125,450 73,777 $345,073 $446,700 91,310 355.390 $700.463 Additional information: The assets were recorded for book purposes at FMV at the date of formation. The building cost was reduced by $12,000 in 2018 for an impairment charge. The vehicles and equipment were depreciated for tax purposes using MACRS lives of 5 and 7 years, respectively and straight line over 10 years for financial reporting purposes. The equipment transferred in 2012 was sold in 2015. New equipment was purchased on Mach 15, 2015 including a lathe costing $47,000, a Chevy truck costing $27,500 and a table saw costing $40,000. On 3/1/18, the company purchased a company car for $51,000. The table saw purchased on 3/15/15 was sold for $20,200 on 7/1/18. It also sold the land contributed by Luke for $27,550 on 11/23/2018. Rent on the similar pieces of land could be found at $10,500 per month. On 2/1/18, the company purchased 150 shares of IBM stock for $72 with excess funds. It sold the stock on 10/3/18 for $75.40 per share. On 2/28/18, it purchased 1000 Microsoft shares for $45.20 per share. FMV of Microsoft was 48 at 12/31/18. Other income consists of: Interest expense $(12,500) Loss on sale of land (12,450) Gain on the sale of stock 510 Loss on sale of saw (6,800) Dividend income 1,450 Unrealized gain on marketable securities 2,800 Cost of goods sold is on a LIFO basis Marketing expense includes a $32,000 payment to the XYZ Consulting. On your books you show the following property values at December 31, 2018: Lathe $ 47,000 Chevy Truck 27,500 Company Car 51,000 Sander 52,000 Band Saw (new) 52,200 Building 217,000 Total cost $446,700 On August 1, 2012, four unrelated individuals created ABC company, Inc. to produce furniture. Peter transferred two pieces of equipment, a lathe with a fair market value (adjusted basis) of $42,520 ($32,450) and a table saw with a fair market value (adjusted basis) of $37,480 ($33,500) for 320 shares of stock. Luke, a cash basis taxpayer, transferred receivables with a FMV of $30,000, land with a FMV (adjusted basis) of $40,000 ($37,500) and $75,000 of cash for 580 shares of stock. The receivables were collected in 2012. The land will be held as an investment. John transferred a building with an adjusted basis of $108,000 subject to a mortgage of $124,000 into the business for 420 shares of stock. John rented the land on which the building was located to the corporation for $11,250 per month. Erik contributed a truck with a fair market value (adjusted basis) of $37,500 ($42,400) for 115 shares of stock and cash. Atty. Bain was given 248 shares of stock for legal services in creating the company, including $9,500 for registering and issuing the stock. The company elected to adjust stock basis for unrecognized losses. Atty. Bain sold his shares to Peter on April 6, 2013 for $235 per share. On September 1, 2017, as part of an expansion, the company purchased a sander for $52,000. On December 31, 2017, Peter, Luke and John transferred from a cash basis joint venture into the company receivables with a FMV of $37,800 and a new undepreciated saw with a fair market value (adjusted basis) of $52,200 ($51,000). Each man received 150 shares of stock. $32,400 of the receivables was collected in 2018 with the remainder written off that year (the only bad debts in 2018). ABC Company Income Statement for the Year Ended December 31, 2018 $2,740,350 1,375,954 $1,364,396 Sales Cost of Goods Sold Gross Profit Operating Expenses Salaries Rent Expense Bad Debt Expense Impairment of Building Depreciation Expense Marketing Other business expenses $776,321 135,000 5,400 12,000 30,203 68,222 7,350 1,034,496 Operating Income Other Income and (Expense) Net income before tax $ 329,900 (26,990) $ 302,910 ABC Company Balance Sheet as of December 31, 2018 Cash Marketable Securities (at FMV) Accounts Receivable Inventory Total Current Assets Property, Plant and Equipment Less: Accumulated Depreciation Total Assets $ 97.846 48,000 125,450 73,777 $345,073 $446,700 91,310 355.390 $700.463 Additional information: The assets were recorded for book purposes at FMV at the date of formation. The building cost was reduced by $12,000 in 2018 for an impairment charge. The vehicles and equipment were depreciated for tax purposes using MACRS lives of 5 and 7 years, respectively and straight line over 10 years for financial reporting purposes. The equipment transferred in 2012 was sold in 2015. New equipment was purchased on Mach 15, 2015 including a lathe costing $47,000, a Chevy truck costing $27,500 and a table saw costing $40,000. On 3/1/18, the company purchased a company car for $51,000. The table saw purchased on 3/15/15 was sold for $20,200 on 7/1/18. It also sold the land contributed by Luke for $27,550 on 11/23/2018. Rent on the similar pieces of land could be found at $10,500 per month. On 2/1/18, the company purchased 150 shares of IBM stock for $72 with excess funds. It sold the stock on 10/3/18 for $75.40 per share. On 2/28/18, it purchased 1000 Microsoft shares for $45.20 per share. FMV of Microsoft was 48 at 12/31/18. Other income consists of: Interest expense $(12,500) Loss on sale of land (12,450) Gain on the sale of stock 510 Loss on sale of saw (6,800) Dividend income 1,450 Unrealized gain on marketable securities 2,800 Cost of goods sold is on a LIFO basis Marketing expense includes a $32,000 payment to the XYZ Consulting. On your books you show the following property values at December 31, 2018: Lathe $ 47,000 Chevy Truck 27,500 Company Car 51,000 Sander 52,000 Band Saw (new) 52,200 Building 217,000 Total cost $446,700