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.

Question

Quizplus · Accepted Answer

Since Walter owns all of the Ajax Corporation stock, the sale of the truck is considered an insider transaction and the sale price ($8,000) is compared to the adjusted basis ($10,000) to determine if there is a loss. In this case, there is no loss for Ajax Corporation to report. Walter's gain is equal to the selling price ($13,000) minus the adjusted basis ($10,000), which is $3,000. Therefore, B is the correct answer.

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