Exam 18: Corporate Liquidations and Reorganizations

Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.35 on the dollar.Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is secured by equipment with a $120,000 book value and a $75,000 fair value. Required: How much of the mortgage receivable will be recovered by Odemay?

What is an advantage of filing a Chapter 11 petition?

Creditor committees are elected

When the bankruptcy court grants an order for relief under Chapter 7,

Which condition must be met for fresh-start reporting for an emerging company from Chapter 11?

Fresh-start reporting results in

Ending 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 $80,000 cash (which includes the amounts shown below for assets sold)and has prepared the following list of approved claims: Required: How much will the bank receive on the note payable?

When a corporation's total liabilities are greater than the fair value of total assets,the firm is

Dip Corporation is in a Chapter 11 bankruptcy reorganization.For each of the following transactions relating to the reorganization,show the journal entry that would be required by Dip.Assume that all unsecured liabilities were not reclassified to Prepetition Claims Subject to Compromise. 1.Dip has $200,000 in bonds payable which mature at the end of the current year.The bondholders agree to accept $100,000 of new common stock and $75,000 cash,payable immediately. 2.Accrued interest on the bonds recorded at $20,000 will not be paid. 3.Recorded patents in the amount of $15,000 are determined to be worthless and are written off. 4.Equipment recorded net at $24,000 is appraised at $30,000. 5.A building recorded net at $78,000 is appraised for $87,000. 6.Creditors owed $120,000 recorded in accounts payable are paid $96,000 in full settlement. 7.Property taxes and payroll taxes withheld are paid in full at $12,000. 8.A capital lease recorded at $48,000 is re-negotiated,and the resulting operating lease will require monthly lease payments of $500. 9.An unsecured bank note amounting to $180,000 will be exchanged for $120,000 note secured by the building and equipment. 10.Current stockholders will exchange their stock which has a current book value of $300,000 for $100,000 common stock of the new entity.

The duties of a debtor in possession in a Chapter 11 bankruptcy case do not include

A single creditor

Pasten Corporation is liquidating under Chapter 7 of the Bankruptcy Act.The accounts of Pasten 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.Wages and salaries were earned within 90 days of filing the bankruptcy petition and do not exceed $10,000 per employee.Liquidation expenses are expected to be $35,000. Required: 1.Prepare a schedule showing the priority rankings of the creditors and the expected payouts. 2.Yuomi Corporation was a supplier to Pasten Corporation and at the time of Pasten's bankruptcy filing,Yuomi's account receivable from Pasten was $500,000.On the basis of the estimates,how much can Yuomi expect to receive?

Alitech Corporation is liquidating under Chapter 7 of the Bankruptcy Act.The accounts of Alitech 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.Wages and salaries were earned within 90 days of filing the petition for bankruptcy and do not exceed $10,000 per employee.Liquidation expenses are expected to be $30,000. Required: 1.Prepare a schedule showing the priority rankings of the creditors and the expected payouts. 2.Billing Corporation was a supplier to Alitech Corporation and at the time of Alitech's bankruptcy filing,Billing's account receivable from Alitech was $40,000.On the basis of the estimates,how much can Billing expect to receive?

Oceana Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.35 on the dollar.Loans-R-Us holds a $1,000,000 mortgage note receivable from Oceana that is secured by building and equipment with a $1,200,000 book value and a $900,000 fair value. Required: How much of the mortgage receivable will Loans-R-Us recover?

Which of the following statements is correct concerning companies emerging from reorganization under Chapter 11 when they do not qualify for fresh start accounting? The forgiveness of debt is reported as

Chapter 7 bankruptcy cases differ from Chapter 11 bankruptcy cases because Chapter 7 bankruptcy

Kline Corporation incurred major losses in 2011 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 $122,700 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.

Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?