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David's recognized gain and basis in the new car?

David's recognized gain and basis in the new car?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 Please explain and show your work!
Transcribed Image Text: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 Please explain and show your work!
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