Streeter & Sons is a regional service company that has been in business for a few years, but has not employed a controller or anyone else full-time to keep track of its financial state. The company needs to take a good look at its financial state to determine whether it needs to make any changes in its practices, in order to prevent possible financial meltdown. Which of the following, if true, would strengthen the case that Streeter & Sons has too much debt?
A) The company has grown only slowly since its beginning.
B) The company's customer base has steadily increased in the last few years.
C) The company is out-competing other similar companies in the area.
D) The company's current liabilities are higher than its current and fixed assets.
E) The company has built up a substantial amount of owners' equity.

Question

Quizplus · Accepted Answer

If Streeter & Sons' current liabilities are higher than its current and fixed assets, it suggests that the company has more debt than assets to cover it. This could lead to difficulty in meeting financial obligations and potentially result in financial hardship or bankruptcy.

Streeter & Sons Is a Regional Service Company That Has