Exam 18: Corporate Liquidations and Reorganizations

Gargantuan Bank has loaned money in two separate loans to Little Company,which is now in Chapter 7 bankruptcy.Little Company has the following assets and liabilities,stated at fair value in liquidation. Required: Determine the amount of cash that Gargantuan will collect from these two pieces of debt.

Rank the following claims of an organization filing Chapter 7 bankruptcy from 1 to 4 based on the following classifications.Each classification may be used more than once. 1.Secured Claims 2.Unsecured Priority Claims 3.Unsecured Nonpriority Claims 4.Stockholders' Claims _____ A.Claims for wages that are less than $10,000 per individual,earned within 90 days of filing petition for bankruptcy. _____ B.Legal fees incurred after petitioning the court for Chapter 7. _____ C.Claim by the accounting firm for the audit fee from the prior year-end audit completed two months prior to the bankruptcy filing. _____ D.Claims for employee benefit plan contributions that are less than $10,000 per individual and relating to services rendered within 180 days of bankruptcy filing. _____ E.Claims with a valid lien against assets of the entity. _____ F.Claim by employee for commissions earned in 90 days prior to filing bankruptcy petition,for the portion in excess of $10,000. _____ G.Administrative expenses of the estate,such as trustee fees. _____ H.Claim by a supplier for goods delivered on account. _____ I.Interest on unsecured claims. _____ J.Taxes owed to a government unit.

Aqua Corporation filed a petition under Chapter 7 of the bankruptcy act in January,2011.On February 28,the following information was presented regarding Aqua's financial status. The Note Payable is secured by Accounts Receivable,and the Mortgage Payable is secured by the Fixed Assets. Required: Calculate the amount expected to be available for unsecured claims and the percentage recovery that the unsecured class should expect to receive.

CommTex Corporation is liquidating under Chapter 7 of the Bankruptcy Act.The accounts of CommTex at the time of filing are summarized as follows: The land and building are pledged as security for the mortgage payable as well as any accrued interest on the mortgage.The note payable is secured with the equipment,but the interest on the note is unsecured.Wages and salaries were earned within 90 days of filing the petition for bankruptcy and pension plan contributions relate to services rendered within 6 months of filing the petition for bankruptcy;neither exceeds $4,000 per employee.Liquidation expenses are expected to be $40,000. Required: 1.Prepare a schedule showing the priority rankings of the creditors and the expected payouts. 2.Devendor Corporation was a supplier to CommTex Corporation and at the time of CommTex's bankruptcy filing,Devendor's account receivable from CommTex was $25,000.On the basis of the estimates,how much can Devendor expect to receive?

An entity which qualified for fresh-start accounting is not required to disclose which of the following items in their initial financial statements?

Rank the following claims 1 through 5,with 1 being the first priority claim,under Chapter 7 of the bankruptcy code. _____ A.Trustee fees for administration of the estate. _____ B.Accounts payable for goods delivered prior to filing an involuntary petition for bankruptcy _____ C.Customer deposits for services never rendered. _____ D.First mortgage on the company's real estate. _____ E.Income taxes owed for the prior year.

Lesher Corporation lost their primary contract and entered into voluntary Chapter 7 bankruptcy in the early part of 2012.By July 1,all assets were converted into cash,the secured creditors were paid,and $124,500 in cash was left to pay the remaining claims as follows: Required: Classify the claims by their Chapter 7 priority ranking,and analyze which amounts will be paid and which amounts will be written off.

Finale Company is in bankruptcy and is being liquidated under the provisions of Chapter 7 of the bankruptcy code.The trustee has converted all assets into $180,000 cash and has prepared the following list of approved claims: Customer deposits ($1,000 from each of three customers Required: How much will the bank receive on the note payable?

In a Chapter 11 case,the debtor corporation filing the petition may continue in possession of the corporation's property,and is referred to as a(n)

A petition commencing a case against a corporate debtor

Ohio Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.05 on the dollar.Lender Bank holds a $100,000 mortgage note receivable from Ohio that is secured by equipment with a $120,000 book value and a $90,000 fair value,and a second mortgage on the same equipment amounting to $50,000. Required: How much of the mortgage receivable will be recovered by Lender?

Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1,2011.A summary of their financial status is shown below on June 30,2011,at the date of the approved reorganization,along with the fair value of their assets. Under the reorganization plan,the reorganization value has been set at $320,000.Prepetition liabilities include $30,000 of trade Accounts Payable and a $220,000 Note Payable to Bigg Bank.The reorganization plan calls for the Prepetition accounts payable to be paid at 80% at a later date,and the Note Payable for $220,000 to be replaced by a Note Payable for $76,000 and the issuance of common stock of the new entity for $100,000.The former stockholders will receive $40,000 in common stock of the new entity,Hilfmir,in exchange for their shares. Required: Show the calculations to determine if Hilfmir is eligible for fresh-start accounting,and prepare a fresh-start balance sheet for the new entity,Hilfmir,as of July 1,2011.

A bankruptcy petition filed by a firm's creditors is

A company emerging from bankruptcy will have a reorganization value that

In a liquidation under Chapter 7,the trustee

Trustin Corporation is in a Chapter 7 bankruptcy liquidation.For each of the following transactions,show the journal entry that would be required by the trustee of the estate. 1.An electric bill is received for $1,000 which had not yet been recorded by Trustin. 2.Inventory recorded net at $18,000 is sold for $16,000 cash. 3.Recorded patents in the amount of $7,000 are determined to be worthless and are written off. 4.Equipment recorded net at $24,000 is sold for $20,000 cash. 5.A building recorded net at $78,000 is sold for $87,000 cash. 6.Trustee fees of $2,500 are accrued. 7.The fully secured mortgage is paid in the amount of $70,000. 8.Wages payable that were recorded in the amount of $9,000 are paid. 9.An equipment lease,which was recorded as prepaid equipment lease,is cancelled and a $1,500 refund is received. 10.Accounts receivable amounting to $12,000 are collected,and an additional $3,000 is determined to be uncollectible.

In a Chapter 7 bankruptcy case,what is the first-to-last ranking order of priority for payment? (Use the following list of claim types. ) I.stockholder claims II)unsecured priority claims III)secured claims IV)unsecured nonpriority claims

Which of the following must approve a Chapter 11 plan?

A primary difference between voluntary and involuntary bankruptcy petitions is that

Faled Company has the following assets and liabilities,stated at fair value in liquidation. Required: Determine the amount of cash that will be available to pay unsecured creditors,and the percentage of unsecured liabilities that will be paid.