A firm has Current Assets of $500,000, Inventory of $200,000, Current Liabilities of $700,000, Total Assets...

A firm has Current Assets of $500,000, Inventory of $200,000, Current Liabilities of $700,000, Total Assets of $3,000,000 and Total Liabilities of $3,500,000. Which of the following statements is correct:

	a.	this firm is bankrupt
	b.	this firm has a Quick Ratio that is greater than one
	c.	this firm has positive equity
	d.	this firm is technically insolvent

Expert Solution

Ans- Option D. this firm is technically insolvent

As the company's Total Liabilities exceeds its Total Assets, they are unable to pay there debt in whole. They are technically insolvent.

- Quick ratio = (Current Assets - Inventory)/Current Liabilities

= ($500,000 - $200,000)/$700,000

= 0.43 times

As, Quick ratio is less than 1, statment b is False

- Total Liabilities exceeds its Total Assets, Equity is negative rather positive

jeff jeffy answered 2 years ago

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