1. The December 31, 2016, balance sheet will show prepetition liabilities of:
1.
2.
3.
4.
a
b
c
d
$340,000 (the claims at filing)
$240,000 (the original claims less the secured portion of the mortgage bonds)
$350,000 (the original claims plus six months’ interest on the bonds)
$290,000 (the original claims less the priority tax claims)
Two-and-a-half years after filing the petition for bankruptcy, Hal’s management, its creditors, the equity holders, and
other parties in interest agree on a reorganization value of $500,000. Which of the following statements is most
likely?
a The reorganization value approximates the appraised value of the firm as a going concern less the
prepetition liabilities.
b The reorganization value approximates the fair value of the assets less the fair value of the
prepetition
and postpetition liabilities.
c The reorganization value approximates the fair value of the assets less the book value of the
postpetition
liabilities and the estimated settlement value of the prepetition liabilities.
d The reorganization value approximates the fair value of the entity without considering the
liabilities.
3.
Uni, a parent company with five wholly owned operating subsidiaries, is in the process of preparing
consolidated financial statements for the year. Two of Uni’s subsidiaries are operating as debtors in
possession under Chapter 11 of the bankruptcy act. Which of the following statements is correct?
a ASC Topic 810, “Consolidation,” prohibits Uni from consolidating the financial
statements of the two
subsidiaries in bankruptcy with those of the other affiliated companies.
b ASC Topic 810, “Consolidation,” requires that the financial statements of all five of the
subsidiaries be
consolidated with those of the parent company.
c If Uni’s consolidated financial statements include the operations of the two subsidiaries
in bankruptcy, ASC Topic 852 requires that condensed combined financial statements for all
entities in reorganization be presented as supplementary financial statements.
d If Uni’s consolidated financial statements do not include the operations of the two
subsidiaries in bankruptcy, those subsidiaries must be accounted for under the cost method.
4.
When fresh-start reporting is used, the initial financial statement disclosures should not include:
1. a Adjustments made in the amounts of individual assets and liabilities
2. b The amount of debt forgiven
3. c The amount of prior retained earnings or deficit eliminated
4.
1.
2.
1.
d Current and prior-year EPS amounts
In partnership liquidation the final cash distribution to the partners should be made in accordance
with the:
1. a Partner profit- and loss-sharing ratios
2. b Balances of partner capital accounts
3. c Ratio of the capital contributions by partners
4. d Safe payments computations
In accounting for the liquidation of a partnership, cash payments to partners after all nonpartner
creditors’ claims have been satisfied, but before final cash distribution, should be according to:
1. a Relative profit- and loss-sharing ratios
2. b The final balances in partner capital accounts
3. c The relative share of gain or loss on liquidation
4. d Safe payments computations
After all noncash assets have been converted into cash in the liquidation of the Mal and Max
partnership, the ledger contains the following account balances:
Cash
Accounts payable Loan payable to Mal Mal capital
Max capital
Debit Credit
$34,000 — — $25,000 — 9,000
8,000 — — 8,000
Available cash should be distributed as follows: $25,000 to accounts payable and:
1.
2.
3.
4.
a
b
c
d
$9,000 for loan payable to Mal
$4,500 each to Mal and Max
$1,000 to Mal and $8,000 to Max
$8,000 to Mal and $1,000 to Max