Pauline's Pastry Shop decides to remodel its offices this year. As part of the remodeling, Pauline's trades furniture with a cost of $12,000 that had been expensed in the year of purchase (Section 179 expense election) for new furniture costing $22,000. Pauline's receives a $5,000 credit for the old furniture and borrows the remaining $17,000 from Easy Finance Company.
What is Pauline's realized gain or loss on the old furniture?
How much of the realized gain or loss is recognized on the exchange?
How much of the realized gain or loss is deferred?
What is the basis of the new furniture?