Exam 18: Corporate Liquidations and Reorganizations

A primary difference between voluntary and involuntary bankruptcy petitions is that

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

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?

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?

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.

U.S.Trustees are appointed by the Attorney General to handle the administrative duties of bankruptcy cases.

Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1,2014.A summary of their financial status is shown below on June 30,2014,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 1,2014.

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.

In the bankruptcy process a statement of affairs is prepared and filed by the trustee.The statement of affairs shows the income statement information.

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