David Drummond and Edward Engels exchange business cars. David gives Edward a car with a basis of $15,000 and a fair market value of $21,500. David receives from Edward a car with a basis of $12,500 (fair market value of $17,000) and $4,500 cash. What is David's recognized gain and basis in the new car?
A) $6,500 and $17,000
B) $4,500 and $15,000
C) $0 and $10,500
D) $2,000 and $12,500

Question

Quizplus · Accepted Answer

David's recognized gain is $4,500 and his basis is $15,000 as follows:
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David Drummond and Edward Engels Exchange Business Cars