Steve Has Opened a Sole Proprietorship Bicycle Shop

question 79

Multiple Choice

Steve has opened a sole proprietorship bicycle shop. The business shows a net income of $100,000. Steve took a salary of $40,000. The remaining money is left in the bank.

• A) At tax time, the business pays taxes on $100,000, and Steve pays taxes on $40,000.
• B) At tax time, the business pays taxes on $140,000.
• C) At tax time, Steve pays taxes on $140,000.
• D) At tax time, the business pays taxes on $70,000, and Steve pays taxes on $70,000.

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Definitions:

Liquidation

The process of bringing a business to an end and distributing its assets to claimants.

Reorganization

Involves restructuring the legal, ownership, operational, or other structures of a company to make it more profitable or better organized for its present needs.

Unperfected Security Interest

A claim or lien on property or assets that has not been formally registered or publicized, making it vulnerable to third-party claims.

Bankruptcy Petition

A formal request filed in a bankruptcy court for protection from creditors, initiating the bankruptcy process.