Pedro Borrowed $125,000 to Purchase a Machine Costing $150,000

question 40

Multiple Choice

Pedro borrowed $125,000 to purchase a machine costing $150,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $115,000 and $21,000.Pedro sells the machine subject to the two liabilities for $27,000.What is his realized gain or loss?

• A)$0.
• B)$27,000.
• C)$136,000.
• D)$163,000.
• E)None of the above.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.

Stock Dividend

A distribution of a corporation's earnings to its shareholders in the form of additional shares rather than cash.

Uncollectible Receivable

A receivable that is deemed irrecoverable and is written off as a loss because the debtor is unable to fulfill their obligation.

Current Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its short-term assets.