Question

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the debt
III. Withdraw funds from Maria’s personal account at the bank to pay the store’s debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store’s debt
A. Ionly Ill only
B. l and Il only
C. I, Il, and IIl only
D. l, lll, and Ⅳ only

Answer 1

Answer:

The answer is: D) I, III and IV only

Explanation:

As a sole proprietor, Maria and her store are considered a single entity. So she is completely liable for all the debts of the store.

That means that Bank is able to:

1. The first thing the Bank will do is try to collect their money from Maria´s personal bank account. If that isn´t enough then they will
2. sell all the inventory of the store to try to get their money back. Finally if that doesn´t cover all the debt they will
3. sell any assets (car, house, etc.) Maria owns to try get the debt paid.

Since Maria rents the warehouse where the store is located, the bank isn´t allowed to do anything with the building because someone else owns it.