Molly Exchanges a Small Machine (Adjusted Basis of $85,000; Fair

question 14

Multiple Choice

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange. What is Molly's recognized gain or loss?

• A)$0
• B)$5,000
• C)($2,000)
• D)($7,000)
• E)None of the above

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Definitions:

Consumer Sovereignty

The theory that consumer preferences determine the production of goods and services in an economy.

Willingness to Pay

The maximum amount an individual is ready to spend for a good or service, reflecting its perceived value.

Ability to Pay

A principle suggesting that the amount of tax an individual or entity should pay is based on the level of their economic resources or income.

Circular Flow Model

An economic model that depicts how money moves through the economy in a circular manner between producers and consumers, including various sectors like households, firms, government, and the foreign sector.