Joe Corporation is a C Corporation whose assets have a total basis of $5,000,000 and a replacement cost of $15,000,000. All of the appreciation is in the value of its patents and other intangible assets. The corporation has $3,000,000 in liabilities. Pam Corporation would like to acquire Joe Corporation because of its intangible assets. Assume that Pam Corporation acquired the Joe Corporation assets and liabilities in a Type A reorganization. Pam gave its stock with a value of $7,000,000 and $5,000,000 cash. Joe Corporation distributed the cash and Pam stock to the Joe shareholders in exchange for all of the Joe stock. The Joe shareholder's basis in the Joe stock was $200,000.
a. Compute Pam's basis in the Joe assets
b. Compute the J shareholder's basis in the Pam stock