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31 March, 19:53

Horace sells equipment with an adjusted basis of $20,000 to his great-grandson, Matthew, for its fair market value of $15,000. Matthew sells the equipment to an unrelated party for $17,000. What are Matthew's realized and recognized gains (losses) upon the sale?

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  1. 31 March, 22:01
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    The recognized gains upon the sale is $2000.

    Explanation:

    As the cost of purchase of the equipment to Mathew is $15000 and the sale proceeds received is $17000. The gain is actually calculated as follows;

    Gain = Sale proceeds - Cost of equipment

    Gain = Matthew sells the equipment to an unrelated party for $17,000 - Matthew bought equipment for its fair market value of $15,000

    Which is $1700 - $1500 = $2000

    Therefore the recognized gains upon the sale is $2000.
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