CHAPTER 15 Completion Statements 1. The term used to describe the party that is the subject of a bankruptcy proceeding is Debtor. 2. Creditors filing an involuntary bankruptcy petition must be owed at least P5,000 in total. 3. The only basis for an involuntary bankruptcy filing by creditors is inability to pay debts as they mature. 4. The major categories of debt that are given special priority under the bankruptcy statutes are a. Administrative cost b. Certain post-filing gap claims in involuntary filings c. Wages salaries and commissions d. Employee benefit plans e. Deposits by individuals f. Taxes 5. The appointment of a trustee is infrequent. 6. A class of creditors has accepted a plan of reorganization if such plan has been accepted by creditors that hold at least 2/3 in amount and more than ½ in number of the allowed claims of such class of creditors. 7. A trustee is authorized to void both fraudulent and preferential transfers. 8. In a liquidation filing, if the court desires information that relates the activity of the trustee with the book balances existing when the trustee was appointed, then a statement of realization and liquidation may be prepared. True or False False 9. Creditors having security interests collateralized by specific assets of a debtor in bankruptcy liquidation are entitled to obtain satisfaction of their claims from the free assets of the debtor's estate. False 10. Unsecured creditors whose claims are to be paid in full from the assets of a debtor in bankruptcy liquidation before any cash is paid to other unsecured creditors are classified as unsecured creditors having preference. False 11. Assets in a statement of affairs (financial statement) are assigned to one of three categories: assets pledged for fully secured liabilities, assets pledged for partially secured liabilities, and priority assets. True 12. Insolvency in the bankruptcy sense is a financial status in which the aggregate current fair value of the assets of a business enterprise is not sufficient to pay the enterprise's liabilities. False 13. The filing of a debtor's petition in bankruptcy does not operate as an order for relief by the bankruptcy court. False 14. Creditors having priority under the Bankruptcy Law include creditors having security interests collateralized. by specific assets of the debtor. True 15. In the accountability technique of accounting used by a trustee for a debtor in bankruptcy liquidation, there is no ledger account for owners' equity. True 16. A railroad corporation may not file a debtor's petition for bankruptcy. True 17. A debtor in bankruptcy liquidation will not be discharged within Six years of a previous bankruptcy discharge. True 18. Owners' equity amounts are not displayed in a statement of affairs (financial statement). False 19. The bankruptcy court has the option of appointing either a trustee or an examiner in bankruptcy reorganization. False 20. All stockholders of a corporation undergoing bankruptcy reorganization must approve the plan of reorganization before it is confirmed by the bankruptcy court. This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ Multiple Choice Questions 21. When is a "statement of affairs" used? a. Only in liquidations. b. Only in reorganizations. c. In both liquidations and reorganizations. d. In preparing a statement of realization and liquidation. e. None of the above. 22. In a "statement of affairs," a. Assets pledged with Partially secured creditors are shown on the asset side of the statement and as a deduction on the liability side of the statement. b. Assets pledged with fully secured creditors are shown only on the liability side of the statement. c. Liabilities owed to fully secured creditors are shown only on the asset side of the statement. d. Liabilities owed to partially secured creditors are shown on the asset side. of the balance sheet and as a deduction on the liability side of the statement. e. None of the above. 23. In a "statement of affairs," a. Liabilities with priority are shown on the liability side of the statement and as a deduction on the asset side of the statement. b. Assets pledged with fully secured creditors are shown on the liability side of the statement and as a deduction on the asset side of the statement. c. Liabilities owed to fully secured creditors are shown on the asset side of the statement and as a deduction on the liability side of the statement. d. Liabilities owed to partially secured creditors are shown on the asset side of the balance sheet and not as a deduction on the liability side of the statement. e. None of the above. 24. A debtor filing a debtor's bankruptcy petition will not be discharged if the debtor had received a prior discharge in bankruptcy within the past: a. Two years b. Four years c. Six years d. Eight years 25. Typically, the estimated amount available for short-term prepayments in a statement of affairs (financial statement) is: a. Zero b. Carrying amount c. Current fair value d. net realizable value 26. William Bautista is starting a new business, Bautista Enterprises, which will be single proprietorship selling retail novelties. Bautista recently received a discharge in bankruptcy, but certain proved claims were Unpaid because of insufficient funds. Which of the following is still a claim against Bautista? a. The unpaid amounts owed to secured creditors who received less than the full amount after resorting to their security interest and receiving their bankruptcy cash payments b. The unpaid amounts owed to trade creditors for merchandise purchased and sold by Bautista in the ordinary course of his prior business enterprise c. A personal loan to Bautista by his father made in an attempt to avoid bankruptcy d. The unpaid amount of income taxes payable to the United States that became due within three years preceding Bautista's bankruptcy This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ 27. 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 28. What type of ledger account is the Estate Deficit account used in the trustee's accounting records for a debtor in bankruptcy liquidation? a. Asset b. Liability c. Equity d. Revenue e. None of the above 29. Which of the following is first-ranked of the unsecured liabilities with priority in bankruptcy liquidation? a. Claims of governmental entities for various taxes or duties b. Administrative costs c. Claims for wages, salaries, and commissions, subject to limitations of amount and time d. None of the foregoing 30. The accounting equation for a trustee in bankruptcy liquidation is: a. Assets equal liabilities plus owners' equity b. Assets equal accountability c. Assets equal liabilities minus estate deficit d. Assets minus liabilities equals accountability 31. Nimbus Company has incurred large net losses for the past two years. Because of its inability to pay current liabilities, Nimbus has filed a petition for reorganization under the Bankruptcy Law. The reorganization provisions of the Bankruptcy Law: a. Require that the bankruptcy court appoint a trustee in all cases b. Permit Nimbus management to remain in possession of its assets c. Apply only to creditors' bankruptcy petitions d. Will apply to Nimbus only if Nimbus is required to register with the Securities and Exchange Commission pursuant to the Philippine securities laws 32. In the journal entry to open the accounting records of a trustee in a Chapter 7 bankruptcy liquidation, the debit to the Estate Deficit ledger account is in the statement of affairs amount of the: a. Estimated deficiency to unsecured, non-priority creditors b. Total estimated amount available c. Estimated amount available for unsecured, non-priority creditors d. Stockholders' equity of the debtor corporation 33. Under the Bankruptcy Code, do creditors having priority include? Partially Secured Creditors Specified Unsecured Creditors a. Yes Yes b. Yes No c. No Yes d. No No 34. What are the objectives of the bankruptcy laws in the Philippines? a. Provide relief for the court system and ensure that all debtors are treated the same. b. Distribute assets fairly and discharge honest debtors from their obligations. c. Protect the economy and stimulate growth. d. Prevent insolvency and protect shareholders. This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ 35. In a bankruptcy, which of the following statements is true? a. An order for relief results only from a voluntary petition. b. Creditors entering an involuntary petition must have debts totaling at least P20,000. c. Secured notes payable are considered liabilities with priority on a statement of affairs. d. None 36. In reporting a company that is to be liquidated. assets are shown at: a. Present value calculated using an appropriate effective rate. b. Net realizable value. c. Historical cost. d. Book value. 37. An involuntary bankruptcy petition must be filed by: a. The insolvent company's attorney. b. The holders of the insolvent company's debenture bonds, c. Unsecured creditors with total debts of at least P 13,475. d. The company's management. 38. An order for relief a. Prohibits creditors from taking action to collect from an insolvent company without court approval. b. Calls for the immediate distribution of free assets to unsecured creditors. c. Can be entered only in an involuntary bankruptcy proceeding. d. Gives an insolvent company time to file a voluntary bankruptcy petition. 39. On a statement of financial affairs, how are liabilities classified? a. Current and noncurrent. b. Secured and Unsecured. c. Monetary and nonmonetary. d. Historic and futuristic. 40. What is a debtor in possession? a. The holder of a note receivable issued by an insolvent company prior to the granting of an order for relief. b. A fully secured creditor. c. The ownership of an insolvent company that continues to control the organization during a bankruptcy reorganization. d. The stockholders in a bankruptcy proceeding. 41. How are anticipated administrative expenses reported on a statement of financial affairs? a. As a footnote until actually incurred. b. As a liability with priority c. As a partially secured liability. d. As an unsecured liability 42. What is an inherent limitation of the statement of financial affairs? a. Many of the amounts reported are only estimations that might prove to be inaccurate. b. The statement is applicable only to bankruptcy. c. The statement covers only a short time. whereas d bankruptcy may last much longer d. The figures on the statement vary as to a voluntary and an involuntary bankruptcy. 43. On a balance sheet prepared for a company during its reorganization, how are liabilities reported? a. As current and long term b. As monetary and nonmonetary. c. As subject to compromise and not subject to compromise. d. As equity related and debt related. This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ 44. On a balance sheet prepared for a company during its reorganization, 'at what balance are liabilities reported? a. At the expected amount of the allowed claims. b. At the present value of the expected future cash flows. c. At the expected amount of the settlement. d. At the amount of the anticipated final payment. 45. A corporation that is unable to pay its debts as they become due is: a. Bankrupt b. Overdrawn c. Insolvent d. Liquidating 46. To assist the trustee, d debtor must a. collect and reduce to money any non-exempt property b. file progress reports with the court c. file a statement of affairs, consisting of answers to a series of questions regarding debtor’s financial condition d. pay dividends to creditors with regards to priorities 47. Which of the following statements is true? a. Certain debts are not dischargeable. b. The goal of liquidation is to give the company a new start. c. All secured claims are paid in full. d. The expenses to administer the estate are paid last because they are unsecured. 48. Which of the following does not describe the accounting statement of affairs? a. the emphasis is on asset net realizable value, not historical cost b. the statement of affairs is concerned only with the assets of the debtor organization, not the claims c. the statement can also be used in reorganization d. the statement of affairs is based on estimated values; actual realized values may be different 49. The document used to estimate amounts available to each class of claims is called a(n) a. Statement of Assets and Liabilities. b. Legal Statement of Affairs. c. Accounting Statement of Affairs. d. Statement of Realization and Liquidation. 50. The document used by a trustee to report periodically on the status of fiduciary activities is called a(n) a. Statement of Assets and Liabilities. b. Legal Statement of Affairs. c. Accounting Statement of Affairs. d. Statement of Realization and Liquidation. 51. After eliminating the deficit in a reorganization plan, a balance may remain in Reorganization Capital. On the balance sheet, where would this account appear? a. part of the Paid-ln Capital b. part of the dated balance in Retained Earnings c. an Intangible Asset if the balance is a debit d. a deferred credit amortized over a period not to exceed 40 years This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ 52. The ratio called "dividend to general unsecured creditors" is calculated by which of the following formulas? a. Estimated amount available for unsecured creditors with/without priority divided by Total claims of all unsecured creditors with/without priority b. Estimated realizable value of all debtor assets divided by Book value of debtor assets c. Estimated gain/loss on liquidation divided by Total estimated net realizable value of debtor assets d. Net estimated proceeds available to unsecured creditors divided by Total claims of unsecured creditors 53. In the accounting statement of affairs, the gains or losses upon liquidation would equal a. net book value of assets minus book value of liabilities. b. the book value of assets minus their realizable value. c. total estimated realizable value of assets minus the amount assigned to secured creditors. d. total estimated realizable value of assets minus the amount remaining for unsecured creditors. 54. A corporation's accounting statement of affairs shows a dividend of 40%. The dividend means that a. all creditors and stockholders will receive approximately 40% of the book value of their respective interests. b. all creditors will receive an amount approximately equal to 40% of the book value of their claims, but stockholders will receive nothing. c. Class 1-6 unsecured claims will receive 40% of the book value of their respective claims. d. Class 7 unsecured claims will receive 40% of the book valve of their respective claims. 55. A corporation's accounting statement of affairs shows a dividend of 1 15%. The dividend means that a. secured creditors will receive an amount in excess of the book value of their claims. b. unsecured creditors will receive an amount in excess of the book value of their claims. c. stockholders may expect some return on their interests. d. an error was made in the preparation of the statement. 56. The Statement of Realization and Liquidation differs from the Statement of Affairs because a. The Statement of Realization and Affairs reports estimated realizable values rather than actual liquidation results b. The Statement of Realization and Affairs is a summary of secured debt activity only c. The Statement of Realization and Affairs is prepared only at final completion of the liquidation process d. The Statement of Realization and Affairs reports actual liquidation results rather than estimated realizable values 57. When a business becomes insolvent, it generally has three possible courses of action. Which of the following is not one of the three possible courses of action? a. The debtor and its creditors may enter into a contractual agreement, outside of formal bankruptcy proceedings. b. The debtor continues operating the business in the normal course of the day-to-day operations. c. The debtor or its creditors may file a bankruptcy petition, after which the debtor is liquidated. d. The debtor or its creditors may file a petition for reorganization. 58. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to: a. accept less than the full amount of their claims. b. delay settlement of the claim until a later date. c. force the debtor into a liquidation. d. accrue interest at a higher rate. This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ 59. A debtor may file which type of petition when seeking judicial protection under the Bankruptcy Law? l. Voluntary ll. Involuntary a. I only b. Il only c. Either I or Il d. Neither I or Il 60. The duties of the trustee include: a. appointing creditors' committees in liquidation cases, b. approving all payments for debts incurred before the bankruptcy filing. c. examining claims and disallowing any that are improper. d. calling a meeting of the debtor's creditors. This study source was downloaded by 100000853470077 from CourseHero.com on 09-28-2022 19:54:52 GMT -05:00 https://www.coursehero.com/file/70327453/Theories-Chapter15docx/ Powered by TCPDF (www.tcpdf.org)
