Question

Suppose you invest $20,000 of your own money in a business as a sole proprietor, and then borrow an additional $10,000 from a bank. Suppose the business fails. Which of the following describes your situation, and what is your total loss?

Answer 1

The correct answer is $30,000.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Own investment = $20,000

Debt from bank = $10,000

As the business is sole proprietor, there is unlimited liability of the loss whether it is own investment or borrowed from a bank.

So, the total loss can be calculated as:

Total loss = Own investment + Debt from bank

= $20,000 + $10,000

= $30,000

Hence, the total loss is $30,000.