Chapter 20 - Corporations in Financial Difficulty
Chapter 20
Corporations in Financial Difficulty
Multiple Choice Questions
1. What is defined as a condition in which a company is unable to meet debts as the debts
mature?
A. Deficit
B. Liability
C. Insolvency
D. Credit squeeze
2. Under a composition agreement,
A. creditors agree to accept less than the face amount of their claims.
B. debtors in financial difficulty transfer assets "without recourse."
C. a creditors' committee is initiated with a plan of settlement proposed by the debtor.
D. the debtor petitions for relief in a bankruptcy court.
3. In which of the following ways can debt be restructured?
I. Assets can be transferred to the creditor.
II. An equity interest can be granted to the creditor.
III. The terms of the debt can be modified.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
4. Under which nonjudicial action do creditors agree to assist the debtor in managing the most
efficient payment of creditors' claims?
A. Debt restructuring arrangement
B. Creditors' committee management
C. Transfer of assets
D. Composition agreement
20-1
,Chapter 20 - Corporations in Financial Difficulty
5. A transfer of assets by a company in financial difficulty is considered a sale if:
I. the transfer includes a recourse provision allowing the buyer to return the asset.
II. the transferee obtains the right to pledge or exchange the transferred assets.
III. the transferred assets have been isolated from the transferor.
IV. the transferor does not maintain effective control over the transferred assets.
A. I, II, and IV
B. Both I and III
C. Both I and II
D. II, III, and IV
6. Chapter 11 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
7. Chapter 7 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
8. The Bankruptcy Reform Act contains chapters which deal with:
I. Individuals.
II. Corporations.
III. Municipal governments.
A. Only I and II
B. Only II and III
C. Only I and III
D. I, II, and III
20-2
,Chapter 20 - Corporations in Financial Difficulty
9. A debtor may file which type of petition when seeking judicial protection under the
Bankruptcy Reform Act?
I. Voluntary
II. Involuntary
A. I only
B. II only
C. Either I or II.
D. Neither I nor II
10. Creditors may file which type of petition when seeking remedy under the Bankruptcy
Code?
I. Voluntary
II. Involuntary
A. I only
B. II only
C. Either I or II
D. Neither I nor II
11. Under the Bankruptcy Code, an insolvent corporation may be:
I. Reorganized.
II. Liquidated.
A. I
B. II
C. Either I or II
D. Neither I nor II
12. Which chapters of the Bankruptcy Code deal with corporations?
A. Chapters 1, 3, and 5
B. Chapter 9
C. Chapters 7 and 11
D. Chapters 12 and 13
20-3
, Chapter 20 - Corporations in Financial Difficulty
13. Which of the following could be true of the proceedings under Chapter 11 of the
Bankruptcy Code?
A. Always administered by the bankruptcy courts.
B. The debtor's assets are sold and its liabilities extinguished.
C. The company does not operate during this period.
D. The debtor continues as a business after the reorganization.
14. Under Chapter 11 proceedings, what represents the fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay for the entity's
assets?
A. Reorganization value
B. Fire sale value
C. Fresh start value
D. Excess value
15. A reorganization value in excess of amounts assignable to identifiable assets is:
A. not reported.
B. reported as an intangible asset called Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets.
C. reported as Goodwill Associated with Exit or Disposal Activities.
D. passed on to prior shareholders of the company.
16. Which of the following observations regarding the use of fresh start accounting is true?
A. It is always required under Chapter 11 bankruptcy proceedings.
B. Prior shareholders will have control of the emerging company.
C. It results in a new reporting entity.
D. It is used under Chapter 7 bankruptcy proceedings.
17. _____ have liens, or security interests, on specific assets.
A. Secured creditors
B. Creditors with priority
C. Unsecured creditors
D. Assured creditors
20-4
Chapter 20
Corporations in Financial Difficulty
Multiple Choice Questions
1. What is defined as a condition in which a company is unable to meet debts as the debts
mature?
A. Deficit
B. Liability
C. Insolvency
D. Credit squeeze
2. Under a composition agreement,
A. creditors agree to accept less than the face amount of their claims.
B. debtors in financial difficulty transfer assets "without recourse."
C. a creditors' committee is initiated with a plan of settlement proposed by the debtor.
D. the debtor petitions for relief in a bankruptcy court.
3. In which of the following ways can debt be restructured?
I. Assets can be transferred to the creditor.
II. An equity interest can be granted to the creditor.
III. The terms of the debt can be modified.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
4. Under which nonjudicial action do creditors agree to assist the debtor in managing the most
efficient payment of creditors' claims?
A. Debt restructuring arrangement
B. Creditors' committee management
C. Transfer of assets
D. Composition agreement
20-1
,Chapter 20 - Corporations in Financial Difficulty
5. A transfer of assets by a company in financial difficulty is considered a sale if:
I. the transfer includes a recourse provision allowing the buyer to return the asset.
II. the transferee obtains the right to pledge or exchange the transferred assets.
III. the transferred assets have been isolated from the transferor.
IV. the transferor does not maintain effective control over the transferred assets.
A. I, II, and IV
B. Both I and III
C. Both I and II
D. II, III, and IV
6. Chapter 11 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
7. Chapter 7 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
8. The Bankruptcy Reform Act contains chapters which deal with:
I. Individuals.
II. Corporations.
III. Municipal governments.
A. Only I and II
B. Only II and III
C. Only I and III
D. I, II, and III
20-2
,Chapter 20 - Corporations in Financial Difficulty
9. A debtor may file which type of petition when seeking judicial protection under the
Bankruptcy Reform Act?
I. Voluntary
II. Involuntary
A. I only
B. II only
C. Either I or II.
D. Neither I nor II
10. Creditors may file which type of petition when seeking remedy under the Bankruptcy
Code?
I. Voluntary
II. Involuntary
A. I only
B. II only
C. Either I or II
D. Neither I nor II
11. Under the Bankruptcy Code, an insolvent corporation may be:
I. Reorganized.
II. Liquidated.
A. I
B. II
C. Either I or II
D. Neither I nor II
12. Which chapters of the Bankruptcy Code deal with corporations?
A. Chapters 1, 3, and 5
B. Chapter 9
C. Chapters 7 and 11
D. Chapters 12 and 13
20-3
, Chapter 20 - Corporations in Financial Difficulty
13. Which of the following could be true of the proceedings under Chapter 11 of the
Bankruptcy Code?
A. Always administered by the bankruptcy courts.
B. The debtor's assets are sold and its liabilities extinguished.
C. The company does not operate during this period.
D. The debtor continues as a business after the reorganization.
14. Under Chapter 11 proceedings, what represents the fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay for the entity's
assets?
A. Reorganization value
B. Fire sale value
C. Fresh start value
D. Excess value
15. A reorganization value in excess of amounts assignable to identifiable assets is:
A. not reported.
B. reported as an intangible asset called Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets.
C. reported as Goodwill Associated with Exit or Disposal Activities.
D. passed on to prior shareholders of the company.
16. Which of the following observations regarding the use of fresh start accounting is true?
A. It is always required under Chapter 11 bankruptcy proceedings.
B. Prior shareholders will have control of the emerging company.
C. It results in a new reporting entity.
D. It is used under Chapter 7 bankruptcy proceedings.
17. _____ have liens, or security interests, on specific assets.
A. Secured creditors
B. Creditors with priority
C. Unsecured creditors
D. Assured creditors
20-4
