Question

Liability comparisons Merideth Harper has invested​ $25,000 in Southwest Development Company. The firm has recently declared bankruptcy and has​ $60,000 in unpaid debts. Explain the nature of​ payments, if​ any, by Merideth in each of the following situations. a. Southwest Development Company is a sole proprietorship owned by Ms. Harper. b. Southwest Development Company is a​ 50-50 partnership of Merideth Harper and Christopher Black. c. Southwest Development Company is a corporation. a. If Southwest Development Company is a sole proprietorship owned by Ms.​ Harper,: ​(Select the best answer​ below.) A. Ms. Harper has limited​ liability, which guarantees that she cannot lose more than the​ $25,000 she invested. B. Ms. Harper has unlimited​ liability, which means creditors can only claim against the​ $25,000 she invested. C. Ms. Harper has limited​ liability, which is the amount of​ $60,000 in unpaid debts. D. Ms. Harper has unlimited​ liability, which means creditors can claim against her personal assets

Answer 1

Answer:

a. D

b. D

c. A

Explanation:

a. It is a sole proprietorship ownership

Under this kind of ownership, the owner is the one who collects or receives all the profits and bear or sustains all the losses. Here, in this type of ownership, the owner has unlimited liability, which means that the owner could use the his or her assets to pay off the debts.

Therefore, the owner is responsible for all the unpaid debts which in turn aggregate wealth can be taken to satisfy the debts.

b. If the company is 50 - 50 partnership

In partnership, all the partners have the unlimited liability and each and every partner is liable legally for the unpaid debts.

In this case, 2 partners are equally liable for the debt. So, each partner is legally liable for $30,000 of the unpaid debts.

c. In Corporations

The owners have a limited liability, which guarantee that they could not lose more than they have invested.

In this case, invested amount is computed as a percentage(%) of the aggregate investment. So, the aggregate amount is not given, therefore, the person could not lose more than what has invested which is $25,000.