Insolvent occurs when which statement is true?

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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.

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