The Current Ratio Is Computed by Dividing Current

question 55

Multiple Choice

The current ratio is computed by dividing current:

• A)liabilities by current assets.
• B)assets by current liabilities.
• C)long-term liabilities by current assets.
• D)long-term assets by current liabilities.

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Definitions:

Technical Insolvency

A situation where a company is unable to meet its short-term liabilities due to a lack of liquid assets, even though its total assets may exceed its liabilities.

Accounting Insolvency

A situation where the total liabilities of an entity exceed its total assets, indicating an inability to pay debts as they come due.

Priority Of Claims

Priority of claims refers to the hierarchical order in which creditors and shareholders are paid in the event of a company's liquidation, dictated by legal and contractual obligations.

Corporate Bankruptcy

Corporate bankruptcy is a legal process that allows financially troubled companies to restructure or eliminate their debts under the protection of the bankruptcy court.