In return for $1,000, Mr. Hand cancels Mr. Sandwich's debt of $4,000. The cancellation is not a gift, and Mr. Sandwich is neither insolvent nor bankrupt. Which of the following statements is correct? (Points : 5)

Mr. Hand has $1,000 taxable income.
Mr. Sandwich has $3,000 of taxable income.
Mr. Sandwich has $4,000 of taxable income.
Neither Mr. Hand nor Mr. Sandwich has any taxable income from this transaction.