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 own stock in General Motors worth $200,000. If you file for bankruptcy, what amount of personal assets do you stand to lose?

Question

Quizplus · Accepted Answer

As the proprietorship is in serious financial difficulty and liabilities are more than assets, the owner may file for bankruptcy. In this case, the personal assets that may be at risk are the stock in General Motors worth $200,000. However, since the liabilities of the proprietorship are greater than the value of personal assets, the owner may only be liable for the unpaid liabilities of the proprietorship, which in this case is $75,000 ($175,000-$100,000). Therefore, the owner stands to lose the value of their stock in General Motors, worth $200,000, minus the unpaid liabilities of the proprietorship, which is $75,000. So the final amount comes to $125,000 ($200,000-$75,000), which is option B.

Suppose You Own a Proprietorship That Is in Serious Financial