Shawn, a sole properietor, is engaged in a service business and uses
the cash basis of accounting. In the current year, shawn incorporates
his business by forming Aqua Corporation. In exhacnge for all its
stock, Aqua receives: assets (basis of $400,000 and fair market value
of $2,000,000), trade accounts payable of $120,000. and loan due to a
bank of $360,000. The proceeds from the bank loan were used by Shawn
to provide operating funds for the business. Aqua Corporation assunes
all of the liabilities transferred to it.

a. Does Shawn recognize any gain on the incorporation?  Explain.
b. What basis does Shawn have in the Aqua Stock?
c. What basis does Aqua Corporation have in the assets it receives?