Nanci Purchases All of the Assets of Michael's Security Service

Nanci purchases all of the assets of Michael's Security Service for $200,000.The assets are as follows:

$\begin{array}{lrr}\text { Asset } & \text { Adjusted Basis } & \text { Fair Market Value } \\\text { Inventory } & \$ 25,000 & \$ 50,000 \\\text { Equipment } & 60,000 & 40,000 \\\text { Supplies } & 20,000 & 20,000 \\\text { Building } & 80,000 & 95,000 \\\text { Land } & 10,000 & 20,000\\\hline &\$195,000&\$225,000\end{array}$
What is Nanci's basis in the equipment?

A) $17,776
B) $35,556
C) $40,000
D) $60,000
E) $61,538