Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 22

Eric exchanged equipment used in his land-clearing business with Geoff for upgraded equipment. Eric exchanged the equipment with a $75,000 FMV and $45,000 basis along with $15,000 cash. Geoff's basis in his equipment is $60,000, and the FMV is $90,000. Which of the following statements is correct? a. Geoff must recognize a gain of $15,000 on the exchange.
B) Geoff must recognize a gain of $5,000 on the exchange.
C) Neither Eric nor Geoff must recognize a gain.
D) Eric must recognize a gain of $15,000 on the exchange.