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

question 76

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

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Definitions:

Market Power

The ability of a firm or entity to influence the price and production levels within a market.

Natural Monopoly

A situation in which a single firm can produce the entire market output at a lower cost than could several firms, making it most efficient for a single firm to serve the entire market.

Average Total Cost

The total cost of production divided by the total quantity of output produced.

Legal Cartel Theory

A concept where regulations permit or create conditions for the existence of cartels, which are agreements between competing firms to control prices or markets.