Future Business Leaders of America (FBLA) Agribusiness Practice Test

If a business has more assets than liabilities, what does it indicate?

1. The business is bankrupt

2. The owner's equity is positive and the business is solvent

3. The business is generating a loss

4. The firm's assets are illiquid

The correct answer is: The owner's equity is positive and the business is solvent

When a business has more assets than liabilities, it indicates that the owner's equity is positive, which means that the firm has enough value in its assets to cover all its debts. This situation generally reflects a solvent business, as it can meet its financial obligations when they come due. Solvency is a crucial aspect of financial health, as it shows that the business is in a stable position to operate and grow. Positive owner’s equity suggests that shareholders or owners have a net asset claim on the business, which is a favorable scenario for investment and future growth opportunities. The other options do not accurately reflect the implications of having more assets than liabilities. Insufficient assets relative to liabilities would be a sign of bankruptcy, while generating a loss would typically mean expenses exceed revenues, not necessarily affecting the balance of assets and liabilities directly. Additionally, illiquidity refers specifically to how quickly an asset can be converted to cash; a higher level of assets compared to liabilities does not, on its own, imply anything about asset liquidity.