Bankruptcy occurs when:
I.A firm fails to pay interest on debt and the creditors enforce their legal rights
II.A firm has insufficient assets to repay all the debt due in 10 years
A)I only
B)II only
C)Both I and II will cause bankruptcy
D)Neither I nor II will cause bankruptcy

Question

Quizplus · Accepted Answer

I. A firm failing to pay interest on its debt and facing legal action from creditors is a direct cause of bankruptcy. This situation indicates the firm is unable to meet its financial obligations, which can lead to bankruptcy proceedings. II. Having insufficient assets to repay all debt due in 10 years does not necessarily cause bankruptcy. Bankruptcy is more immediately concerned with a firm's inability to meet its current obligations, not its long-term debt situation.

Bankruptcy Occurs When: I.A Firm Fails to Pay Interest on Debt and the Debt