Dane Is a Stockholder in SmallWorld, Inc

question 303

Multiple Choice

Dane is a stockholder in SmallWorld, Inc., a C corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld goes bankrupt, Dane and the other stockholders will:

• A) be personally responsible for all remaining debts.
• B) lose their investment but nothing else.
• C) be entitled to full reimbursement of any investment losses.
• D) automatically qualify for federal reimbursement for any losses suffered by the firm.

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Definitions:

Employer's Taxes

Taxes that employers are required to pay on behalf of their employees, such as social security and Medicare taxes in the United States.

Gross Pay

The total amount of money earned by an employee before any deductions or taxes are taken out.

Net Pay

Gross earnings, less deductions. Net pay, or take-home pay, is what the worker actually takes home.

Wages and Salaries Payable

Liabilities for wages and salaries that have been earned by employees but have not yet been paid.