QUESTION 1 Questions 1-15 refer to the following fact pattern: Five individuals, A, B, C, D and E formed X Co. After making the following transfers to X Co. they own 100% of X Co A $18,000 cash and $2,000 worth of services B Property: FMV 560,000 BASIS S 60,000 MORTGAGE S20,000 C Property: FMV 532,000 BASIS $10,000 MORTGAGE $12,000 D Property FMV $20,000 BASIS $40,000 E Property FMV $92,000 (capital asset) BASIS $10,000 MORTGAGE S 2,000 (Depreciation recapture potential of $14,000) In return, they receive the following from X Co A $20,000 Stock B $26,000 Stock $14,000 Cash C $20,000 Stock D $18,000 Stock $2,000 Cash 60,000 Stock+$30,000 Cash A's reportable income and his basis in the X Co. stock is: 1. $2.000 ordinary income and $18,000 basis 2 $2.000 ordinary income and $20,000 basis 3 $20.000 ordinary income and $20,000 basis None of these