Intermediate Accounting 14th Edition

Published by Wiley
ISBN 10: 0470587237
ISBN 13: 978-0-47058-723-2

Chapter 5 - Balance Sheet and Statement of Cash Flows - Questions - Page 279: 2

Answer

Solvency is a term used to refer to the ability of a business entity to meet its debts as they mature. Information used may include the long-term debt obligations as well as total assets.

Work Step by Step

For instance, if the long-term debt outdoes total assets, this means that the company has high solvency or may face difficulties settling its debts as they mature.
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