1) In year 1, Gardner used funds earmarked for use in Gardner's business to make a personal loan to Carson. In year 3, Carson declared bankruptcy, having paid off only $500 of the loan at that time. In year 1, Gardner purchased equipment for use in Gardner's business. In year 3, Gardner sold the equipment at a $5,000 loss. In January, year 3, Gardner received shares of stock as a gift from Smith; the shares had been purchased by Smith in year 1. In November, year 3, Gardner sold the property for a $5,000 gain.

Which of the above transactions will Gardner report as long-term capital gains or losses for year 3?

A.Both the sale of equipment and the sale of shares.

B.The sale of equipment

C.Write-off of uncollectible personal loan

DThe sale of shares

2) A great-grandparent sold equipment with an adjusted basis of $20,000 to their great-grandchild for its fair market value of $15,000. The great-grandchild sold the equipment to an unrelated party for $17,000. What are the great-grandchild's realized and recognized gains (losses) upon selling the equipment to the unrelated party?

Realized gain (loss)

Recognized gain (loss)

A) ($3,000)

($3,000)

B) $2,000

$0

C) $0

$0

D) $2,000

$2,000