XYZ exchanged old equipment for new like-kind equipment. XYZ’s adjusted basis in the old equipment was $13000 ($30,000 initial cost—$17,000 accumulated depreciation), and its FMV was $20,000. Because the new equipment was worth $28,500, XYZ paid $8,500 cash in addition to the old equipment.

a. Compute XYZ’s realized gain and determine the amount and character of any recognized gain.

b. Compute XYZ’s basis in its new equipment,