Individuals Lloyd and Grace form an S corporation, with Lloyd contributing cash of $100,000 for a 50% interest, and Grace contributing appreciated ordinary income property (adjusted basis of $20,000 and a fair market value of $100,000).
(I) Determine Grace's initial basis in her stock, assuming that she receives a 50% interest.
(II) The S corporation sells the property for $120,000. Determine Lloyd's and Grace's stock basis after the sale.
(III) Determine Lloyd's and Grace's gain or loss if the company is liquidated.