Exam 18: Corporate Liquidations and Reorganizations

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

Aqua Corporation filed a petition under Chapter 7 of the bankruptcy act in January,2014.On February 28,the following information was presented regarding Aqua's financial status. Book Values Fair Values Cash \ 50,000\ 50,000 A/R - net 100,000 90,000 Inventories 80,000 60,000 Fixed Assets - net 200,000 230,00 Prionty Clains 80,000 A/P 100,000 N/P 110,000 Mortgage Payable 200,000 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.

The inability to make payments on time is equity insolvency.

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?

What is an advantage of filing a Chapter 11 petition?

In a liquidation under Chapter 7,the trustee

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

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

A petition commencing a case against a corporate debtor

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

A bankruptcy petition filed by a firm's creditors is

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 $11,725 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?

Fresh-start reporting results in

The doctrine of equitable subordination allows judges to move unsecured creditors ahead of secured creditors in bankruptcy proceedings in the interest of "fairness".

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

A statement of realization and liquidation is an activity statement that shows progress toward the liquidation of a debtor's estate.

Lesher Corporation lost their primary contract and entered into voluntary Chapter 7 bankruptcy in the early part of 2014.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: Claims incurred between the date of filing an involuntary Wages payable (all under $10,000 per employee; earned within Required: Classify the claims by their Chapter 7 priority ranking,and analyze which amounts will be paid and which amounts will be written off.

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)

Creditor committees are elected

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?