ch 20
Student: ___________________________________________________________________________
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
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. 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
,7. 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.
8. 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
9. 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
10. 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
11. 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
12. 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.
13. 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
14. 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.
,15. 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.
16. A "debtor-in-possession" balance sheet is prepared for a company which:
A. is having its debts restructured.
B. is undergoing a liquidation under Chapter 7.
C. is undergoing a reorganization under Chapter 11.
D. is in bankruptcy reorganization but management still controls the company.
17. A debtor-in-possession balance sheet should report:
I. Liabilities not subject to compromise.
II. Liabilities subject to compromise.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
18. On a debtor-in-possession income statement, which of the following items should be reported under the
heading "Reorganization Items"?
A. Sales
B. Selling expenses
C. Income tax benefit
D. Loss on disposal of assets
19. Typically, the plan of reorganization must be approved by at least _____ of all creditors, who must hold
at least _____ of the dollar amount of the outstanding debt.
A. one-third; half
B. two-thirds; half
C. half; one-third
D. half; two-thirds
20. 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
21. _____ have liens, or security interests, on specific assets.
A. Secured creditors
B. Creditors with priority
C. Unsecured creditors
D. Assured creditors
22. As defined by the Bankruptcy Code, creditors with priority:
I. have collateral claim against specific assets.
II. are unsecured creditors who have priority over other unsecured creditors.
III. are the first to be paid from any proceeds available to unsecured creditors.
A. I only
B. II only
C. I, II and II
D. Both II and III
, 23. Which of the following observations concerning claims by general unsecured creditors is NOT true?
A. They are paid only after secured creditors and unsecured creditors with priority are satisfied to the
extent of any legal limits.
B. They often receive less than the full amount of their claim.
C. They are entitled to "preference payments" at the discretion of the debtor's management.
D. The amounts to be paid to them are usually stated as a percentage of the total claim.
24. The payment to general unsecured creditors is often termed:
A. a "preference payment."
B. a "dividend."
C. a "write-off."
D. a "bonus."
25. "Preference payments" made by the debtor to one creditor to the detriment of all other creditors within 90
days before the bankruptcy petition was filed:
A. is reduced from the monies available to the general unsecured creditors.
B. is usually written off.
C. may be recovered and returned to the cash available for all creditors.
D. are not recovered, as management assurances are binding.
26. The accounting statement of affairs is prepared:
A. at the end of the reorganization process.
B. at the end of the liquidation process.
C. at the beginning of the reorganization process.
D. at the beginning of the liquidation process.
Orville Company recently petitioned for bankruptcy and is now in the process of preparing a statement of
affairs. The carrying values and estimated fair values of the assets of Orville Company are as follows:
Debts of Orville are as follows:
27. Based on the preceding information, what is the total amount of unsecured claims?
A. $113,000
B. $126,000
C. $93,000
D. $121,000
28. Based on the preceding information, what estimated amount will be available for general unsecured
creditors upon liquidation?
A. $28,000
B. $93,000
C. $113,000
D. $121,000
Student: ___________________________________________________________________________
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
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. 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
,7. 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.
8. 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
9. 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
10. 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
11. 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
12. 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.
13. 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
14. 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.
,15. 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.
16. A "debtor-in-possession" balance sheet is prepared for a company which:
A. is having its debts restructured.
B. is undergoing a liquidation under Chapter 7.
C. is undergoing a reorganization under Chapter 11.
D. is in bankruptcy reorganization but management still controls the company.
17. A debtor-in-possession balance sheet should report:
I. Liabilities not subject to compromise.
II. Liabilities subject to compromise.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
18. On a debtor-in-possession income statement, which of the following items should be reported under the
heading "Reorganization Items"?
A. Sales
B. Selling expenses
C. Income tax benefit
D. Loss on disposal of assets
19. Typically, the plan of reorganization must be approved by at least _____ of all creditors, who must hold
at least _____ of the dollar amount of the outstanding debt.
A. one-third; half
B. two-thirds; half
C. half; one-third
D. half; two-thirds
20. 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
21. _____ have liens, or security interests, on specific assets.
A. Secured creditors
B. Creditors with priority
C. Unsecured creditors
D. Assured creditors
22. As defined by the Bankruptcy Code, creditors with priority:
I. have collateral claim against specific assets.
II. are unsecured creditors who have priority over other unsecured creditors.
III. are the first to be paid from any proceeds available to unsecured creditors.
A. I only
B. II only
C. I, II and II
D. Both II and III
, 23. Which of the following observations concerning claims by general unsecured creditors is NOT true?
A. They are paid only after secured creditors and unsecured creditors with priority are satisfied to the
extent of any legal limits.
B. They often receive less than the full amount of their claim.
C. They are entitled to "preference payments" at the discretion of the debtor's management.
D. The amounts to be paid to them are usually stated as a percentage of the total claim.
24. The payment to general unsecured creditors is often termed:
A. a "preference payment."
B. a "dividend."
C. a "write-off."
D. a "bonus."
25. "Preference payments" made by the debtor to one creditor to the detriment of all other creditors within 90
days before the bankruptcy petition was filed:
A. is reduced from the monies available to the general unsecured creditors.
B. is usually written off.
C. may be recovered and returned to the cash available for all creditors.
D. are not recovered, as management assurances are binding.
26. The accounting statement of affairs is prepared:
A. at the end of the reorganization process.
B. at the end of the liquidation process.
C. at the beginning of the reorganization process.
D. at the beginning of the liquidation process.
Orville Company recently petitioned for bankruptcy and is now in the process of preparing a statement of
affairs. The carrying values and estimated fair values of the assets of Orville Company are as follows:
Debts of Orville are as follows:
27. Based on the preceding information, what is the total amount of unsecured claims?
A. $113,000
B. $126,000
C. $93,000
D. $121,000
28. Based on the preceding information, what estimated amount will be available for general unsecured
creditors upon liquidation?
A. $28,000
B. $93,000
C. $113,000
D. $121,000
