Final answer:
Arlington LLC's recognized gain on the exchange is the boot received, which amounts to b. $2,000. The book value of the old land was $28,000, while the fair market value of the assets received totaled $37,000 ($35,000 for the new land plus $2,000 for the office equipment), resulting in a realized gain of $9,000, but the gain recognized is limited to the boot of $2,000.
Step-by-step explanation:
The gain or loss recognized on the exchange of Arlington LLC's land for new land and office equipment is calculated by comparing the book value of the old land (original cost) with the fair market value of the assets received. The original purchase price of the old land was $28,000, and the fair market value of the new land received in the exchange is $35,000. In addition, Arlington also received office equipment valued at $2,000.
Under IRS rules for a like-kind exchange, the gain recognized is generally the lesser of the gain realized or the boot received. The gain realized on the exchange is the fair market value of assets received ($35,000 + $2,000) minus the book value of the land given up ($28,000), which equals $9,000. However, since boot (cash or unlike property) of $2,000 was received, the recognized gain is limited to the amount of boot, which in this case is $2,000.
Therefore, the correct answer to the question, 'What is Arlington's gain or loss recognized on the exchange?' would be: