Insolvent occurs when which statement is true?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $9.99Unlock all

Master Personal Finance with our comprehensive practice test designed to help you achieve your financial goals, budget effectively, and build wealth. Study with varied question formats and detailed explanations. Prepare confidently!

Multiple Choice

Insolvent occurs when which statement is true?

Explanation:
Insolvency means what you owe is more than what you own. When total liabilities exceed assets, you have negative net worth, which means you can’t cover all debts with the assets on hand. That condition is what defines insolvency, so the statement that liabilities exceed assets is true. Having assets exceed liabilities shows solvency, not insolvency. A negative cash flow describes a liquidity issue over time, not necessarily insolvency. Net worth of zero means assets equal liabilities, which is not insolvency because there’s no shortfall to cover debts.

Insolvency means what you owe is more than what you own. When total liabilities exceed assets, you have negative net worth, which means you can’t cover all debts with the assets on hand. That condition is what defines insolvency, so the statement that liabilities exceed assets is true. Having assets exceed liabilities shows solvency, not insolvency. A negative cash flow describes a liquidity issue over time, not necessarily insolvency. Net worth of zero means assets equal liabilities, which is not insolvency because there’s no shortfall to cover debts.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy