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Exam 13: A: Accounting for Legal Reorganizations and Liquidations

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Question 1

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During a reorganization, how should interest expense be reported on the financial statements?

A) On the income statement, but not classified as a reorganization item.
B) On the income statement as a separate reorganization item.
C) On the balance sheet as a prepaid expense.
D) As a debit directly to retained earnings.
E) On the balance sheet as an intangible asset.

F) A) and D)
G) C) and D)

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Question 2

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Prepare a schedule to show the amount of assets available for unsecured creditors after payment of liabilities with priority.

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Question 3

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Prepare a schedule to show the amount of assets available for unsecured creditors after payment of liabilities with priority.

A company is insolvent when

Candice Company is currently going through bankruptcy reorganization.The accountant has determined the following balances of the accounts at December 31, 2018. Prepare the balance sheet for Candice Company.Retained earnings will need to be calculated.

What are the four categories of debts in a Statement of Financial Affairs?

What is meant by a "fully secured liability"?

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000. -On a statement of financial affairs, what amount would have been shown as assets available to pay liabilities with priority and unsecured creditors?

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet: Additional information is as follows: -The investments are currently worth $13,000. -It is estimated that $32,000 of the accounts receivable are collectible. -The inventory can be sold for $74,000. -The prepaid expenses and the intangible assets have no net realizable value. -The land and building are currently valued at $250,000. -The equipment can be sold for $60,000. -Administrative expenses (not yet recorded) are estimated to be $12,500. -Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees). -Accrued expenses include $7,000 of unpaid payroll taxes. -Prepare a schedule to show the amount of assets available for unsecured creditors after payment of liabilities with priority.

-Total liabilities with priority are calculated to be what amount?

Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities: The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000. -How much should Quincy expect to pay on the accounts payable?

How is the presentation of an income statement during a reorganization different from a normal income statement?

On a statement of financial affairs, a company's liabilities should be valued at

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000. -What was the total amount of unsecured liabilities with priority?

Prepare a schedule to show the amount of total unsecured non-priority liabilities.

Where should a company undergoing reorganization report the gains and losses resulting from the reorganization?

How is the presentation of a balance sheet during a reorganization different from a normal balance sheet?

-Total assets, available to pay liabilities with priority and unsecured creditors, are calculated to be what amount?

Mount Inc. was a hardware store that operated in Boise, Idaho. Management made some poor inventory acquisitions that loaded the store with unsalable merchandise. Due to the decline in revenues, the company became insolvent. Following is a trial balance as of March 15, 2018, the day the company filed forChapter 7 liquidation. Company officials believed that sixty percent of the accounts receivable could be collected if the company was liquidated. The building and land had a fair value of $97,500, while the equipment was worth $24,700. The investments represented shares of a publicly traded company that could be sold at the time for $27,300. The entire inventory could be sold for only $42,900. Administrative expenses necessary to carry out a liquidation were estimated to be $20,800. -How much cash would have been paid to an unsecured non-priority creditor who was owed a total of $1,300 by Mount Inc.? (Round the payout percentage to a whole number.)

On a statement of financial affairs, a company's assets should be valued at