Scenario: XZY Corp trades its used machinery with a value of $29,500 and an adjusted basis of $18,742

($30,615 historical cost less $11,873 of accumulated depreciation) to the dealer for new machinery

valued at $27,500. To equate the value of the property exchanged, the dealer also pays XZY Corp

$2,000. What gain or loss does XZY Corp realize on the exchange and what gain or loss does XZY Corp

recognize on the exchange?

What is the character of XZY Corps $2,000 gain?

What if: Suppose the same facts as above, except that XZY Corps adjusted basis in the machinery was

$29,000. What amount of gain would XZY Corp recognize on the exchange?

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