Question

P1-1 Liability comparisons Merideth Harper has invested $25,000 in Southwest Devel- opment Company. The firm has recently declared bankruptcy and has $60,000 in unpaid debts. Explain the nature of payments, if any, by Merideth in each of the following situations. a. Southwest Development Company is a sole proprietorship owned by Ms. Harper. b. Southwest Development Company is a 50-50 partnership of Merideth Harper and Christopher Black. c. Southwest Development Company is a corporation.

Answer 1

AS PER CHEGG POLICY I'VE ANSWERED 1ST QUESTION. KINDLY POST ONE QUESTION AT A TIME. THANK YOU!

ANSWER :

a) In a Sole proprietorship, the owner who is the sole proprietor takes entire profit and suffers all losses. The Owner has unlimited liability in case of a sole proprietorship concern. Therefore, Merideth is personally liable to settle all unpaid debts and other obligations . This means that if business assets are not adequate to settle the debts, the owner's personal accounts, assets, or property are used to settle outstanding Debts.

b) If south west development company is a 50-50 partnership, :

Partners have unlimited personal liability for the liabilities of the Partnership and partners are jointly liable for the unpaid debts. In the given case both are equal partners hence they are equally liable for the unpaid debts. Each partner's liability comes to $30,000(50% x $60,000).

c) In a Corporation, owners are called shareholders who have limited liability ie, the liability is limited to the extentof 'nominal' value of the shares owned by them in the company. Merideths investment in the company is calculated as percentage of the total investment inside the company. But total investment amount isn't provided in the question. However merideths liabilityiin the unpaid debt is limited to the extend of his investment in the corporation