Adv

Front 1

What is the meaning of the phrase debtor in possession? (page 664)

Back 1

If a plan of reorganization allows the firm to remain in possession of its assets, the firm is called a debtor-in-possession and management usually continues to operate the business. A debtor in possession is an individual or corporation that has filed for Chapter 11 bankruptcy protection and remains in control or property that a creditor has a lien against, or retains the power to operate a business.

Front 2

2. What is the difference between a liquidation and a reorganization?

Back 2

In a liquidation, a trustee takes control of the firm’s assets , sell them and distributes the proceeds to creditors on a pro rata basis. A completed liquidation process results in most remaining debts being discharged-cancelled with the creditor having no further claim. Debts not discharged include certain taxes, alimony and child support, and certain student loans.In a reorganization, the firm continues in business without liquidating its assets. The firm develops an equitable plan that modifies the rights and interest of its creditors and stockholders and often restructures its business operations. If a plan of reorganization allows the firm to remain in possession of its assets, the firm is called a debtor-in-possession and management usually continues to operate the business. To be implemented, the reorganization plan must be approved by creditors representing two-thirds of the dollar claims and a creditor’s committee supervises administration of the plan.

Front 3

3. How is the presentation of a balance sheet during a reorganization different from a normal balance sheet?

Back 3

During reorganization, the balance sheet should separately classify the amount of liabilities subject to compromise. A liability is subject to compromise if it is a prepetition liability and is not fully secured. A petition liability arose prior to filing for Chapter 11 protection, or arose after filing but resulted from pre bankruptcy events and is allowed by the court as a prepetition claim. The balance sheet of the firm in reorganization reports the total amount of liability subject to compromise under a separate caption, with disclosure of the major categories of these claims in the notes of the financial statements.

Front 4

4. Explain the payment order in a corporate liquidation.

Back 4

Fully secured liabilities - The creditor has a lien of specific assets with estimated realizable values equal to or greater than the amount of the liability.Partially secured liabilities - The creditor has a lien of specific assets with estimable realizable values less than the amount of the liability.Unsecured liabilities with priority - These are obligations where the creditor has no lien on any specific assets of the bankrupt firm, but section 507 of the bankruptcy code identifies the claims as having priority by law over other unsecured creditors.Administrative expenses of the trustee, including accounting and legal costs, as well as compensation to the trustee for work performedUnpaid compensation to employees, from services rendered within 180 days of filing for bankruptcy. Amounts due to employee benefit plans, from services rendered within 180 days of filing for bankruptcy.

Front 5

5. Explain the purpose of consolidated financial statements and describe how the Economic Unit concept and the concept of control relate to business combinations.

Back 5

Consolidated financial statements are issued to report the financial position and operating results of a parent company and its subsidiaries as a single economic entity, despite the fact that the affiliated companies are separate legal entities. In the economic unit concept,the minority interest in the subsidiary's net assets is displayed in the stockholders' equity section of the consolidated balance sheet, and the minority interest in the subsidiary's net income is displayed as a subdivision of total consolidated income in the consolidated income statement.

Front 6

6. How should a parent company determine the functional currency of a foreign subsidiary and appropriate accounting treatment in the conversion of the subsidiary’s records to U.S. dollars?

Back 6

n

Front 7

7. What events or conditions should be addressed in the Articles of Partnership (page 615)

Back 7

The partnership agreement sometimes referred to as the articles or partnership, is a contract among the partners. On certain matters, such as the allocation of income among partners, the contractual agreement takes precedence over the provisions of the UPA (Uniform Partnership ACT). On other matters, such as the rights of outside parties, the agreement cannot be a variance with the law. In general, the partnership agreement deals with the following matters...Characteristics of the partnership, such as its name, nature of its business activity, location, duration, and fiscal yearMethods of allocating partnership income to the partnersProcedures for admitting new partners and for settling a partner’s interest upon withdrawal or death, including life insurance to be carried on partners and buy-sell agreements.

Front 8

8. Discuss how accounting for a partnership is different from accounting for corporations also how discuss what events or circumstances might force the termination of a partnership and liquidation of its assets

Back 8

n