Theories Questions.pptx

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1.) The following statements are true about Corporate Liquidation except: a) Liquidity refers mainly to a firm’s inability to meet its short-term obligations, while solvency relates to the longer time span of obligation. b) In the legal sense, an entity is considered insolvent when the financial condition is such that the sum of the entity’s debts is greater than all of such entity’s property at fair valuation. c) An entity remains solvent for as long as the carrying value of its assets exceed its liabilities, even though the enterprise cannot meet its currently maturing obligations due to an insufficiency of liquid resources. d) When an enterprise resorts to a liquidation, the process may be started by the debtor filing a voluntary petition or the creditors filing an involuntary petition.
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ANSWER: C An entity remains solvent for as long as the fair value, not the carrying value , of its assets exceed its liabilities, even though the enterprise cannot meet its currently maturing obligations due to an insufficiency of liquid resources.
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2.) What is the absolute priority rule of the following claims once a
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