Math

QuestionIdentify which situation indicates a person is insolvent:
1. Assets \$56,400; expenses \$61,100
2. Assets \$78,400; net worth \$23,100
3. Liabilities \$45,400; net worth \$7,100
4. Assets \$40,400; liabilities \$46,100

Studdy Solution

STEP 1

Assumptions1. Insolvency is a financial state in which a person's liabilities exceed their assets. . The assets, liabilities, annual expenses, and net worth are given in the problem.
3. The net worth is calculated as the difference between assets and liabilities.

STEP 2

First, let's define the condition for insolvency. A person is insolvent when their liabilities are greater than their assets.
Liabilities>AssetsLiabilities > Assets

STEP 3

Now, let's analyze each of the given situations to determine which one meets the condition for insolvency.
For the first situationAssets = \$56,400; annual expenses = \$61,100In this case, we are comparing assets with expenses, not liabilities. Therefore, we cannot determine insolvency from this information.

STEP 4

For the second situationAssets = \78,400;networth=$23,100Inthiscase,wearegiventhenetworth,notliabilities.However,weknowthatnetworthiscalculatedasassetsminusliabilities.Therefore,wecancalculateliabilitiesasfollows78,400; net worth = \$23,100In this case, we are given the net worth, not liabilities. However, we know that net worth is calculated as assets minus liabilities. Therefore, we can calculate liabilities as followsLiabilities=AssetsNetWorthLiabilities = Assets - Net\, Worth$

STEP 5

Plug in the values for assets and net worth to calculate liabilities.
Liabilities=$78,400$23,100Liabilities = \$78,400 - \$23,100

STEP 6

Calculate the liabilities.
Liabilities=$78,400$23,100=$55,300Liabilities = \$78,400 - \$23,100 = \$55,300In this case, liabilities (\$55,300) are less than assets (\$78,400), so the person is not insolvent.

STEP 7

For the third situationLiabilities = \$45,400; net worth = \$7,100In this case, we are given liabilities and net worth, but not assets. Without knowing the assets, we cannot determine if the person is insolvent.

STEP 8

For the fourth situationAssets = \$40,400; liabilities = \$46,100In this case, we are given both assets and liabilities. We can compare these to determine if the person is insolvent.

STEP 9

Compare the assets and liabilities.
Liabilities>AssetsLiabilities > Assets$46,100>$40,400\$46,100 > \$40,400In this case, liabilities (\$46,100) are greater than assets (\$40,400), so the person is insolvent.
The situation that describes a person who could be insolvent is Assets \$40,400; liabilities \$46,100.

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