Walter, Who Owns All of the Ajax Corporation Stock, Purchases

question 35

Multiple Choice

Walter, who owns all of the Ajax Corporation stock, purchases a truck from Ajax Corporation in January. The truck cost $12,000 and has a $10,000 adjusted basis. Walter pays the truck's $8,000 FMV. Later in the same year, Walter sells the truck to an unrelated party for $13,000. With respect to these transactions,

• A) Ajax Corporation reports no loss and Walter reports a gain of $5,000.
• B) Ajax Corporation reports a loss of $4,000 and Walter reports a gain of $5,000.
• C) Ajax Corporation reports a loss of $2,000 and Walter reports a gain of $5,000.
• D) Ajax Corporation reports no loss and Walter reports a gain of $3,000.

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Definitions:

Contingency Planning

The process of preparing for possible future situations or changes in operation, especially emergencies or unfavorable circumstances.

Simulation Analysis

involves using mathematical models to replicate a real-world system or process in order to predict outcomes or assess the impact of different variables on that system.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volume, highlighting the impact of fixed costs.

Automobile Manufacturing

The industry involved in the design, development, production, marketing, and selling of motor vehicles.