Babex Incorporated and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged.

Babex OMG

FMV $ 1,000,000 $ 825,000

Adjusted tax basis 768,000 514,500

Mortgage 175,000 -0-

Pursuant to the exchange, OMG assumed the mortgage on the Babex property. Compute Babex's gain recognized on the exchange and its tax basis in the property received from OMG.

Multiple Choice

$175,000 gain recognized; $768,000 basis in OMG property.

No gain recognized; $768,000 basis in OMG property.

$175,000 gain recognized; $943,000 basis in OMG property.