The claims of equity holders on the firm's income can not be paid until the claims of all creditors have been satisfied. But, the claims of the equity holders on the firm's assets have priority over the claims of creditors because the equity holders are the owners of the firm.

Question

Quizplus · Accepted Answer

The statement is incorrect. The claims of creditors have priority over the claims of equity holders on the firm's assets in the event of liquidation or bankruptcy. This is because creditors have a legal claim to the firm's assets to recover the money they have lent, whereas equity holders hold a residual claim on the firm's assets after all liabilities have been settled.

The Claims of Equity Holders on the Firm's Income Can