Explanation:
Statement B is false (and therefore the correct answer for this "EXCEPT" question).
First, bankruptcy is a formal legal status declared by a court, not an automatic state derived directly from a firm's balance sheet metrics. Second, the factual claim in option B is incorrect: Old Crow's current assets ($120,000) are less than its current liabilities ($150,000), meaning the firm faces illiquidity, not an excess of current assets.
Old Crow was technically solvent on 12/31/2022 because its Total Assets ($200,000) exceeded its Total Liabilities ($195,000), making statement D true. The default on 1/1/2023 is a failure to meet a legal obligation, which in this case is primarily driven by illiquidity (making statement A true). Statement C highlights that default can be related to insolvency in general contexts. Statement B stands out as definitively false.
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24.1.2 This is Old Crow Corporation's balance sheet at the end of 2022:
12/31/2022
| Current Assets ($) | Current Liabilities ($) |
|---|---|
| Cash and Cash Equivalents | 2,000 |
| Accounts Receivable | 35,000 |
| Inventory | 70,000 |
| Prepaid Expenses | 13,000 |
| Total Current Assets | 120,000 |
| LT Assets | 80,000 |
| Total Assets | 200,000 |
In addition, let's assume the following information:
Based on the above information, each of the following statements is true EXCEPT which statement is false?
A
Old Crow defaulted on 1/1/2023, and the default could be due to illiquidity.
B
Old Crow went bankrupt on 12/31/2022 when its current assets exceeded its current liabilities.
C
Old Crow defaulted on 1/1/2023, and the default could be due to insolvency.
D
Old Crow was solvent on 12/31/2022.
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