Mark Operates an Auto Parts Shop

question 23

Multiple Choice

Mark operates an auto parts shop.The shop has gone out of business,and all assets have been sold.The following debts remain: 1.$10,000 owed to suppliers for merchandise that was sold to customers.
2) $20,000 owed to suppliers for merchandise that was ruined in an unexpected flood.
3) $35,000 owed to a customer who has a final judgment in a product liability suit against the auto parts shop.
For which of these debts can Mark be held personally liable?

• A) None; they were all business debts.
• B) 1 only
• C) 1 and 2 only
• D) 1 and 3 only
• E) 1,2,and 3

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which is recognized in the financial statements as an expense.

Times Interest Earned Ratio

A financial metric that measures a company's ability to cover its interest expenses with its earnings before interest and taxes.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.

Equity Multiplier

A financial leverage ratio that measures the portion of a company’s assets that is financed by stockholders' equity.