Question

Sea Green Enterprises reports the following assets and liabilities on its balance sheet. Net Book Value Fair Market Value Assets $600,000 $925,000 Liabilities 200,000 200,000 Sea Green just lost a product liability suit with damages of $10,000,000 being awarded to the plaintiff. Although Sea Green will appeal the judgment, legal counsel indicates the judgment is highly unlikely to be overturned by the appellate court. The product liability insurance carried by Sea Green includes a payout ceiling of $6,000,000. Assume any net assets of the company will be used to reduce the judgment. For how much of the judgment is the entity and its owners liable if Sea Green is a sole proprietorship, a partnership, an LLC, a C corporation, and an S corporation

Answer 1

Answer:

A. $3,275,000

B. $3,275,000

C. $3,075,000

D. $3,075,000

Explanation:

A. Calculation to determine how much of the judgment is the entity and its owners liable if Sea Green is a SOLE PROPRIETORSHIP,

First step is to calculate the FMV of the net assets

FMV of the net assets=($925,000 - $200,000)

FMV of the net assets =$725,000

Now let calculate the amount the owner is liable of

Amount liable=($10,000,000-$6,000,000)-$725,000

Amount liable= ($4,000,000 - $725,000).

Amount liable=$3,275,000

Therefore the amount of the judgment that the entity and its owners liable if Sea Green is a SOLE PROPRIETORSHIP is $3,275,000

B. Calculation to determine how much of the judgment is the entity and its owners liable if Sea Green is a PARTNERSHIP

First step is to calculate the net FMV of the

net assets

Net FMV of the

net assets =($925,000 - $200,000)

Net FMV of the

net assets= $725,000

Now let calculate the partners are liable of

Amount liable=($10,000,000-$6,000,000)-$725,000

Amount liable= ($4,000,000 - $725,000).

Amount liable=$3,275,000

Therefore the amount of the judgment that the entity and its owners liable if Sea Green is a PARTNERSHIP is $3,275,000

C. Calculation to determine how much of the judgment is the entity and its owners liable if Sea Green is a C corporation

Corporate debts=($10,000,000-$6,000,000)-$925,000

Corporate debts=($4,000,000 - $925,000).

Corporate debts =$3,075,000

Therefore the amount of the judgment that the entity and its owners liable if Sea Green is a C corporation is $3,075,000

D. Calculation to determine how much of the judgment is the entity and its owners liable if Sea Green is a S corporation

Corporate debts=($10,000,000-$6,000,000)-$925,000

Corporate debts=($4,000,000 - $925,000).

Corporate debts =$3,075,000

Therefore the amount of the judgment that the entity and its owners liable if Sea Green is a S corporation is $3,075,000