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

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.