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Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building). In a Chapter 7 bankruptcy, total assets available to pay liabilities with priority and unsecured creditors are calculated to be what amount?

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During a reorganization, how should interest expense be reported on the financial statements?


A) on the income statement, but not classified as a reorganization item.
B) on the income statement as a separate reorganization item.
C) on the balance sheet as a prepaid expense.
D) as a debit directly to retained earnings.
E) on the balance sheet as an intangible asset.

F) A) and B)
G) A) and C)

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Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000. What was the total amount of unsecured liabilities with priority? A) $130,000. B) $155,000. C) $166,550. D) $170,000. E) $200,000. Pension $10,000 + Salaries $36,550 (= $10,600 + $11,725 + $11,725 + $2,500) + Taxes $80,000 + Liquidation expenses $40,000 = $166,550. Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000. What was the total amount of unsecured liabilities with priority?


A) $130,000.
B) $155,000.
C) $166,550.
D) $170,000.
E) $200,000.
Pension $10,000 + Salaries $36,550 (= $10,600 + $11,725 + $11,725 + $2,500) + Taxes $80,000 + Liquidation expenses $40,000 = $166,550.

F) B) and C)
G) B) and E)

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A Chapter 7 bankruptcy is a(n)


A) involuntary reorganization.
B) bankruptcy forced by a company's creditors.
C) liquidation.
D) bankruptcy in which all creditors receive payment in full.
E) voluntary reorganization.

F) A) and B)
G) A) and C)

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What is the meaning of the phrase debtor in possession?

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When there is a debtor in possession dur...

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What information is included on the statement of realization and liquidation?

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The statement of realization and liquida...

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Which statement is false regarding the acceptance and confirmation of a reorganization plan?


A) The plan must be voted on by the creditors and the stockholders of the company.
B) A separate vote is required of each class of stockholders.
C) Any class of creditors that is not damaged by a reorganization is assumed to have accepted the plan without voting.
D) Even if creditors and stockholders approve of the plan, the court can reject the plan.
E) Acceptance of the plan requires the approval of two-thirds in number of claims and one-half in dollar amount of creditors that cast votes.

F) B) and D)
G) All of the above

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Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities: Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities: The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000. How much should the mortgage holder expect to collect from the liquidation? A) $474,000 B) $510,000 C) $450,000 D) $480,000 E) $478,000 Land and building sold for $450,000 leaves $60,000 unsecured still owing. 40% x $60,000 = $24,000 Mortgage holder expects $450,000 + $24,000 = $474,000 The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000. How much should the mortgage holder expect to collect from the liquidation?


A) $474,000
B) $510,000
C) $450,000
D) $480,000
E) $478,000
Land and building sold for $450,000 leaves $60,000 unsecured still owing. 40% x $60,000 = $24,000
Mortgage holder expects $450,000 + $24,000 = $474,000

F) B) and E)
G) A) and B)

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During a reorganization, cash reserves tend to grow. How should interest earned on these reserves be reported on the financial statements?


A) as an unearned revenue until the reorganization is complete.
B) as a credit directly to retained earnings.
C) on the balance sheet as a long-term liability.
D) on the income statement, but not classified as a reorganization item.
E) on the income statement as a reorganization item.

F) All of the above
G) C) and E)

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What is an order for relief?

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An order for relief is a court...

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What is the purpose of Chapter 7 of the Bankruptcy Reform Act?

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The purpose of Chapter 7 of th...

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On a statement of financial affairs, a company's liabilities should be valued at


A) the present value of future cash flows.
B) net realizable value.
C) the amount required for settlement.
D) replacement cost.
E) the amount expected to be paid if the company could honor its debts.

F) A) and E)
G) B) and D)

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Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities. Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities. Assets that are available for unsecured creditors after payment of liabilities with priority are calculated to be what amount? Assets that are available for unsecured creditors after payment of liabilities with priority are calculated to be what amount?

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All of the following items are liabilities with priority except:


A) Obligations arising between the date an order of relief is issued and the date of final realization of assets.
B) Employee claims for contributions to benefit plans earned more than 180 days preceding the filing of a petition, limited to $11,725 per individual.
C) Government claims for unpaid taxes.
D) Claims for the return of deposits made by customers to acquire property or services, which were never delivered or provided by the debtor, limited to $2,600.
E) Claims for administrative expenses in preserving and liquidating the company.

F) B) and C)
G) B) and E)

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How is the presentation of a balance sheet during a reorganization different from a normal balance sheet?

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GAAP requires that assets on the balance...

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Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building). Assets available for unsecured creditors after payment of liabilities with priority are calculated to be what amount?

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Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building). A statement of financial affairs created for an insolvent corporation that was beginning the liquidation process disclosed the following data (assets were shown at net realizable values): Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building). A statement of financial affairs created for an insolvent corporation that was beginning the liquidation process disclosed the following data (assets were shown at net realizable values): Required: How much money appears to be available for unsecured creditors after payment of liabilities with priority? Required: How much money appears to be available for unsecured creditors after payment of liabilities with priority?

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What information is conveyed by the Statement of Realization and Liquidation?


A) Account balances reported by the company at the date of the filing of the bankruptcy petition.
B) Cash receipts generated by the sale of the debtor's property.
C) Write up of assets.
D) Recognition of recorded liabilities.
E) Assets and liabilities but not stockholders' equity.

F) A) and B)
G) D) and E)

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What occurs in the accounting records for fresh start accounting when a bank agrees to accept less than the debtor's book value of a note payable?

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A Gain on Debt Discharge is re...

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Which of the following is not one of the more common reorganization plan elements?


A) plans for plant expansion.
B) plans for generating additional monetary resources.
C) plans to settle the debts of the company that existed when the order for relief was entered.
D) plans proposing changes in the company's operations.
E) plans for changes in the management of the company.

F) A) and C)
G) A) and B)

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