Problem #2 24 points

Prisha, Juan, Hank, and Erica decide to pool the resources from their respective sole proprietorships and form a PJHE, Inc. These four individuals contribute the following items to form this corporation:

Asset Adj. Basis Fair Mkt Value Shares of Stock

Prisha Cash 50,000 50,000 1,000 shares

Equipment 10,000 50,000

Juan Building/land 80,000 250,000 1,500 shares

Mortgage* (100,000) (100,000)

Hank Computers 130,000 100,000 1,000 shares

Erica Office furnishings 40,000 150,000** 1,000 shares

*The corporation assumed the mortgage associated with Juans building.

**Erica received $50,000 of cash in addition to the 1,000 shares of stock.

Required:

Prisha:

1. Does Prisha recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?
2. What is Prishas basis in ABC stock?
3. What is ABCs basis in the equipment?

Juan:

1. Does Juan recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?
2. What is Juans basis in ABC stock?
3. What is ABCs basis in the land and building?

Hank:

1. Does Hank recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?
2. What is Hanks basis in ABC stock?
3. What is ABCs basis in the computers?

Erica:

1. Does Erica recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?
2. What is Ericas basis in ABC stock?
3. What is ABCs basis in the office furnishings?