Joe Smith Owns a Bookstore as a Sole Proprietor

question 110

Multiple Choice

Joe Smith owns a bookstore as a sole proprietor.He is also a partner in a hotel,which borrowed $100 000 from the bank.Which of the following statements is true?

• A)The bank can look to the assets of the bookstore to pay off the debt.
• B)Although the bank can go after Smith's personal assets,it cannot go after the assets of the bookstore because the bookstore is a separate legal entity from Smith.
• C)The bank can only go after the assets of the bookstore if Smith is the actual person who negotiated the loan with the bank.
• D)The bookstore's assets will only be available to the bank if the bookstore is operated by Smith in conjunction with the hotel.
• E)Because of the concept of limited liability,Smith can lose only what he has invested in the hotel.

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Definitions:

Merchandise Inventory

Merchandise on hand (not sold) at the end of an accounting period.

Notes Receivable

Written promises for amounts to be received in the future, typically with interest, classified as assets on a balance sheet.

Calculating Interest

The process of determining the amount of interest to be added to the principal sum of a loan or deposit.

Maturity Value

The amount that will be paid to the holder of a financial instrument at its maturity date, including both the principal and any final interest payments.