Question

which of the following best characterizes a firm with current assets of $5,000 and current liabilities of $1,000?
○ liquid
○ solvent
○ insolvent
○ unprofitable

Explanation:

To determine the correct answer, we analyze each term:

• Liquid: Refers to short - term ability to meet obligations. The current ratio (current assets / current liabilities) here is $\frac{5000}{1000}=5$, showing strong short - term liquidity.
• Solvent: Relates to total assets vs total liabilities (not just current). We don’t have total liabilities info, so this is not the best fit.
• Insolvent: Means liabilities exceed assets, but we can’t conclude that here (current assets > current liabilities).
• Unprofitable: Relates to income vs expenses, not assets/liabilities.

Answer:

Liquid