Liabilities Assets
Equity 50,000 Total Assets 250,000
Liab. 200,000
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250,000 250,000
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If he takes his equity 50,000 then creditors will have only 180,000 - 50,000 i.e. 130,000 which is not sufficient. write answer yourself if he can do this or not.
John wants to dissolve his business.His balance sheet shows assets with a value of $250,000 in total. Liabilities are shown at 200,000 leaving equity of $50,000 for John.He only expects to get $180,00,000 for his assets when he sells them because some fixed assets are old and some accounts receivable will go uncollected.He would like to take his equity of $50,000 and leave the rest of the proceeds of the sale to pay his creditors. Can he do this? Can anyone please help with this?
2 answers
If he only plans on getting 180k for the assets, and owes 200k in debts then there will be no equity left to cover the remaining 20k in liabilities. The way I read this, it will cost him 20k personally to shut down the business.
1 answer