Memphis Is the Owner of a Car Performance Tuning Business

question 25

Multiple Choice

Memphis is the owner of a car performance tuning business. As a sole proprietor, any profit he earns is:

• A)taxed as the earnings of a sole proprietorship as a business.
• B)treated as Memphis's personal income.
• C)not subjected to any tax.
• D)taxed only when he withdraws the money from a bank.

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Definitions:

Equity (Leverage)

The amount of funds contributed by owners (shareholders) plus the retained earnings (or losses). It can also refer to the use of debt to acquire additional assets.

Borrowed Money

Funds that an individual or entity obtains from another party under the condition of future repayment with interest, which can be used for various purposes.

Debt Paying Ability

Debt paying ability indicates an entity's capacity to repay its debt obligations based on its financial situation, including liquidity ratios and income.

Acid-test Ratio

A stringent indicator of a company's liquidity, calculating its ability to cover short-term obligations with its most liquid assets, excluding inventory.