Suppose you own a proprietorship that is in serious financial difficulty.The assets of the company are $100, 000, but liabilities are $175, 000.You also have, however, stock in General Motors worth $200, 000.If you file bankruptcy, what amount of personal assets do you stand to lose?
A)$100, 000
B)$75, 000
C)$200, 000
D)$275, 000
E)$375, 000

Question

Quizplus · Accepted Answer

In this scenario, the owner's personal assets are only at risk if they have personally guaranteed loans or debts of the proprietorship. If there are no personal guarantees, then only the company's assets can be used to pay off creditors in bankruptcy. The value of the stock in General Motors is not at risk unless it was pledged as collateral for loans or debts of the proprietorship. Therefore, the owner stands to lose only the difference between the value of the assets and liabilities of the proprietorship, which is $75,000 ($175,000 liabilities - $100,000 assets).

Suppose You Own a Proprietorship That Is in Serious Financial