Question

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. $100,000b. $75,000c. $200,000d. $275,000e. $375,000

Answer 1

b. $75,000

Step-by-step explanation:

Since assets are $100,000 and liabilities are $175,000, the owner has a deficit to cover of $75,000 ($175,000-$100,000). The deficit will have to be recovered from the owner's stock in General Motors in order to settle the outstanding liabilities. Therefore, the owner will stand to lose the $75,000.