W.T. Grant was the largest retailer in the United States when it caught nearly everyone by surprise by filing for bankruptcy in 1975. W.T. Grant had been in existence since the turn of the century and had a long history of profitability including regularly paying dividends from 1906 to 1974. How is it possible that a company can report positive net income and yet be forced to seek bankruptcy protection?

A strong response will include supporting specific accounting concepts and specific generally accepted accounting principles, as applicable. These accounting concepts and generally accepted accounting principles should be fully defined and applied as well as supported by specific examples as an illustration, as applicable.