A-Risk Rules (LO. 4) Marlene opens an outdoor sports complex that features batti

Question

A-Risk Rules (LO. 4) Marlene opens an outdoor sports complex that features batting cages, miniature golf, and a driving range. She invests $106,900 of her own money and borrowe $735,600 from her bank. She uses $473,600 of the loan proceeds to acquire the land and construct the office building for the sports complex. The remaining loan proceeds are used to acquire equiprnent and furnishings. The loan is secured by the land. building, and equipment. Refer At-Risk Rules to answer the followng questions. Enter the amount Marlene is at risk in the business if the $735,600 debt was obtained on reasonably commercial terms and is secured as followsa a. The business assets purchased, and Marlene is personally liable if the business assets are insufficient to satisty the debt b. The business assets purchased, and Marlene is nat personally liable if the business assets are insufficient to satisfy the debt. ,| c. The business assets purchased, and Marlene is not personally liable if the business assets are insufficient to satisfy the debt. Instead of a sports complex sh uses the loan to purchase an apDrtment complex.

Explanation / Answer

a) Marlene is at risk for the amount of 842500 $ which includes both her personal investment of 106900 $ and the loan of 735600 $ because she is personally liable for the debt.

b) As Marlene is not personally liable if the business assets are insufficient to satisfy the debts, she is only at risk for 106900 $ she invested in and is not considered at risk for the loan amount.

c) Marlene is at risk for the amount of 586500 $ which includes her personal investment of 106900 $ and 479600 $ of the loan proceeds for the acquisition of land and construction of building for sports complex office. As she uses the loan to purchase apartment complex instead of sports complex, the component of the loan towards building sports complex is considered along with personal investment.

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