Lyons the Lion Inc. owned investment land subject to a $294,500 recourse mortgage. Lyons the Lion Inc. failed to make timely mortgage payments, so the creditor foreclosed. At date of foreclosure, Lyons the Lion Inc.'s basis in the land was $300,000, and the land's appraised FMV was $260,000. The creditor informed Lyons the Lion Inc. that it would not pursue collection of the $34,500 unpaid balance of the mortgage. Which of the following statements is true?

A. Lyons the Lion Inc. recognizes $34,500 ordinary income and a $40,000 capital loss.

B. Lyons the Lion Inc. recognizes only a $40,000 capital loss.

C. Lyons the Lion Inc. recognizes only a $5,500 capital loss.

D. None of the above