Question 1

Chapter 7 bankruptcy cases differ from Chapter 11 bankruptcy cases because Chapter 7 bankruptcy

Accepted Answer

Chapter 7 bankruptcy requires full liquidation of the bankrupt company, while Chapter 11 bankruptcy allows for reorganization through a court-approved plan. Choice A is incorrect because both Chapter 7 and Chapter 11 can be voluntary or involuntary. Choice B is incorrect because Chapter 11 requires a reorganization plan, while Chapter 7 does not. Choice C is partially correct, as both Chapter 7 and Chapter 11 require the debtor corporation to file a list of creditors and schedule of assets and liabilities, but Chapter 7 liquidates the company through the involvement of a trustee, while Chapter 11 allows for the company to continue operating under the supervision of the court.

Question 2

A petition commencing a case against a corporate debtor

Accepted Answer

A petition commencing a case against a corporate debtor can be filed under either Chapter 7 or Chapter 11 of the bankruptcy act. The choice between Chapter 7 and Chapter 11 will depend on the specific circumstances of the case, such as the nature and amount of the corporate debtor's debts, the viability of the business, and the preferences of the debtor and its creditors. Ultimately, the decision of which chapter to file under will be made by the debtor, with the approval of the bankruptcy court.

Question 3

In a liquidation under Chapter 7, the trustee

Accepted Answer

In Chapter 7 liquidation, the trustee is appointed by the court and is responsible for converting the debtor's assets to cash and distributing the proceeds to the creditors.

Question 4

The duties of a debtor in possession in a Chapter 11 bankruptcy case do not include

Accepted Answer

Issuing an order of relief is the responsibility of the bankruptcy court, not the debtor in possession. The other duties listed (filing creditor lists and schedules, operating the business, filing a reorganization plan) are all responsibilities of the debtor in possession in a Chapter 11 case.

Question 5

When a corporation's total liabilities are greater than the fair value of total assets, the firm is

Accepted Answer

When a corporation's total liabilities are greater than the fair value of total assets, the firm is technically insolvent in the bankruptcy sense, meaning that they are unable to pay their debts and are at risk of being forced to file for bankruptcy.

Question 6

In a Chapter 11 case, the debtor corporation filing the petition may continue in possession of the corporation's property, and is referred to as a(n)

Accepted Answer

In a Chapter 11 case, the debtor corporation filing the petition may continue in possession of the corporation's property and business operations as a debtor in possession, meaning they retain control and responsibility for managing the business throughout the bankruptcy process. The other options (A, B, and C) are not applicable to Chapter 11 bankruptcies.

Question 7

An entity which qualified for fresh-start accounting is not required to disclose which of the following items in their initial financial statements?

Accepted Answer

The answer of An entity which qualified for fresh-start accounting...

Question 8

What is an advantage of filing a Chapter 11 petition?

Accepted Answer

Filing for Chapter 11 allows the debtor to cancel unfavorable contracts, which can be a significant advantage in restructuring a troubled business.

Question 9

When the bankruptcy court grants an order for relief under Chapter 7,

Accepted Answer

When an order for relief is granted under Chapter 7, the debtor corporation's assets are liquidated and distributed among its creditors. After this, the remaining debts may be discharged, which means that the debtor is no longer legally responsible for them. However, creditors are not allowed to seek payment directly from the debtor after the bankruptcy court has granted the order for relief.

Question 10

A primary difference between voluntary and involuntary bankruptcy petitions is that

Accepted Answer

The primary difference between voluntary and involuntary bankruptcy petitions is that in a voluntary filing, the debtor initiates the filing by petitioning the bankruptcy court themselves. In contrast, in an involuntary filing, a creditor or group of creditors initiates the filing by petitioning the bankruptcy court.

Question 11

Fresh-start reporting results in

Accepted Answer

Fresh-start reporting involves creating a new reporting entity that has no retained earnings or deficit balance, essentially resetting the financial position of the entity as if it were a new company.

Question 12

A company emerging from bankruptcy will have a reorganization value that

Accepted Answer

The reorganization value of a company emerging from bankruptcy typically approximates the fair market value of the entity without considering liabilities. This is because the purpose of bankruptcy is to restructure the entity's liabilities in a way that allows it to continue operating, and therefore the value of the entity's assets is typically more important than the value of its liabilities. The book value of the entity's assets or prior value may not reflect current market conditions or future potential.

Question 13

Which of the following statements is correct concerning companies emerging from reorganization under Chapter 11 when they do not qualify for fresh start accounting? The forgiveness of debt is reported as

Accepted Answer

The answer of Which of the following statements is correct...

Question 14

Which condition must be met for fresh-start reporting for an emerging company from Chapter 11?

Accepted Answer

For fresh-start reporting to be applicable, the reorganization value of the emerging entity's assets immediately before the date of the confirmation of the reorganization plan must be less than the total of all postpetition liabilities and allowed claims. This results in the creation of a new accounting entity with a new accounting basis, which means that the emerging entity is deemed to be a new entity for accounting purposes.

Question 15

Which of the following must approve a Chapter 11 plan?

Accepted Answer

A Chapter 11 plan must be approved by the bankruptcy court and the creditors. While the trustee plays a significant role in the Chapter 11 process, their approval is not required for the plan to be confirmed. Similarly, although stockholders have the right to vote on a plan, their approval is not a requirement for confirmation.

Question 16

In a Chapter 7 bankruptcy case, what is the first-to-last ranking order of priority for payment? (Use the following list of claim types.) I. stockholder claims
II) unsecured priority claims
III) secured claims
IV) unsecured nonpriority claims

Accepted Answer

The answer of In a Chapter 7 bankruptcy case, what...

Question 17

A bankruptcy petition filed by a firm's creditors is

Accepted Answer

An involuntary petition is filed by a firm's creditors, as opposed to a voluntary petition that is filed by the firm itself. The petition may request liquidation, but that is not the name of the petition. The correct chapter for bankruptcy would be Chapter 7 for liquidation. Therefore, the correct answer is C, an involuntary petition.

Question 18

Creditor committees are elected

Accepted Answer

The answer of Creditor committees are elected
...

Question 19

A single creditor

Accepted Answer

The answer of A single creditor
...

Question 20

Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?

Accepted Answer

An income statement is not prepared for a trustee in a Chapter 7 bankruptcy case. Instead, the trustee prepares a statement of receipts and disbursements, which includes all transactions related to the administration of the bankruptcy estate.

Quiz 18: Corporate Liquidations and Reorganizations