Answer:
A. Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes $5,000 as ordinary income.
Explanation:
Carmen transferred land (Sec. 1231 property) that has adjusted basis $18,000 with a FMV of $20,000. This means there is a gain to be recognized on the transfer of $2,000.
In case of Marc, there is no gain or loss on the transfer of equipment. However, the value of $5,000 short term note received will be recognized as ordinary income.
A. Keeping in view the above provided information, this statement is correct.
B. The transfer does result in a gain for Carmen, therefore, this statement is incorrect.
C. As there is gain for one individual and odinary income to be recoginzed for the other, therefore, this statement is also incorrect.
D. Marc has not transferred property Sec. 1231 instead the transfer was of machinery. Hence, this statement is also incorrect.