Balance sheet solvency involves having negative net assets-where liabilities exceed assets.Question 4Select one:TrueFalse

Break Down the Problem

1. Analyze the term "Balance Sheet Solvency": Balance sheet solvency refers to a company's ability to meet its long-term financial obligations.
2. Understand the relationship between assets and liabilities: Solvency is typically determined by the relationship between total assets and total liabilities.

Relevant Concepts

1. Definition of Net Assets: Net assets are calculated as Total Assets - Total Liabilities.
2. Implication of Negative Net Assets: If liabilities exceed assets, this results in negative net assets.

Analysis and Detail

1. Condition for Solvency: A company is solvent if its total assets are greater than or equal to its total liabilities. Conversely, it is insolvent if its liabilities surpass its assets.
2. Status of Solvency with Negative Net Assets: Negative net assets indicate that liabilities exceed assets, which signifies insolvency.

Verify and Summarize

• Since solvency is identified through the positive relationship of assets and liabilities, the statement indicating that balance sheet solvency involves having negative net assets is False.

Final Answer

False