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:

Optimal Capital Structure

The best mix of debt, equity, and other financing sources that minimizes the firm's cost of capital while maximizing its value.

Marketed Claims

Financial claims such as securities that are traded in public markets.

Nonmarketed Claims

Claims that cannot be easily bought or sold in the public markets, often referring to private investments or interests in closely held companies.

Capital Structure

Refers to the mix of debt and equity financing that a company uses to fund its operations and growth.