In year 1, Gardner used funds earmarked for use in Gardner's business to make a personal loan to Carson. In year 3, Carson declared bankruptcy, having paid off only $500 of the loan at that time. In year 1, Gardner purchased equipment for use in Gardner's business. In year 3, Gardner sold the equipment at a $5,000 loss. In January of year 3, Gardner received shares of stock as a gift from Smith; the shares had been purchased by Smith in year 1. In November of year 3, Gardner sold the shares of stock for a $5,000 gain.
Which of the above transactions will Gardner report as long-term capital gains or losses for year 3?
I. The bad debt write-off
II. The sale of equipment
III. The sale of shares
a. II and III only
b. I only
c. III only
d. None of the above