Why D? And why not the others?

Correct answer: D. Record the inventory received at $40,000, Company M's carrying amount for the inventory given up, and recognize no gain, because ASC 845-10-30-3(b) carves out exchanges of inventory held for sale in the ordinary course of business for inventory to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange

ASC 845-10-30-3 lists specific exceptions to the general rule that nonmonetary exchanges are recorded at fair value with a gain or loss recognized. One exception, in ASC 845-10-30-3(b), applies when the exchange is of a product held for sale in the ordinary course of business for a product to be sold in the same line of business, to facilitate sales to customers other than the parties to the exchange — exactly this fact pattern, since each grocery chain is swapping inventory to resell to its own customers rather than to the counterparty. That exception applies regardless of whether the exchange otherwise has commercial substance, so the inventory received is recorded at Company M's own carryover cost of $40,000 and no gain is recognized. The option recognizing a $12,000 gain misapplies the general commercial-substance rule without accounting for this specific carve-out. The option deferring the gain until resale invents a deferral mechanism that ASC 845 does not use; the standard's exception simply results in carryover basis, not a deferred gain that surfaces later. The option recording carryover basis but requiring note disclosure of an 'unrecognized gain' fabricates a disclosure requirement; under carryover-basis treatment there is no gain to disclose because none is measured or recognized in the first place.

Source: FASB ASC 845-10-30-3(b) and 845-10-30-16 (exchange of inventory in the same line of business to facilitate sales to customers)