Exam 18: Corporate Liquidations and Reorganizations

An executory contract is one that has been completely performed but not settled in terms of payment.

Moddle Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.20 on the dollar.National Corporation holds a $500,000 mortgage note receivable from Moddle that is secured by equipment with a $550,000 book value and a $430,000 fair value. Required: How much of the mortgage receivable will National recover?

A single creditor

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.

In the case of Chapter 7 Liquidation,the stockholders are the first to have their claims satisfied.

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: Note payable to bank,secured by all accounts receivable of which $20,000 Required: How much will the bank receive on the note payable?

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?

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.

Chapter 7 bankruptcy appoints a trustee to sell off the assets of the company and pay claims to its creditors.

Rank the following claims 1 through 5,with 1 being the first priority claim,under Chapter 7 of the bankruptcy code.

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 Note payable to bank,secured by all accounts receivable of which $45,000 Required: How much will the bank receive on the note payable?

In cases of Chapter 11,a private trustee or a debtor in possession can be appointed to oversee the reorganization.

Kline Corporation incurred major losses in 2014 and entered into voluntary Chapter 7 bankruptcy in the early part of 2015.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: petition and the date an interim trustee is appointed earned within 90 days of filing bankruptcy petition) 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?

When total debts exceed the fair value of total assets it is referred to as equity insolvency.

DeFunk Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.18 on the dollar.Magma Corporation holds a $200,000 mortgage receivable from DeFunk that is secured by the land and buildings with a book value of $180,000 and a fair value of $190,000.Magma also holds an $80,000 unsecured note receivable from Defunk.Mortgage interest owed,which is secured with the mortgage note,is $4,000.Note interest owed,which is unsecured,is $2,000. Required: How much of the amounts owed will Magma recover?

Which of the following must approve a Chapter 11 plan?

A company emerging from bankruptcy will have a reorganization value that

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