Adv Accounting Midterm #2

Under a partnership, each partner has mutual agency and limited liability.

False

When a partner dissociates from the partnership, the partnership operation is terminated.

False

When liquidating a partnership the first payment is to amounts due partners liquidating their capital balance.

False

When total debts exceed the fair value of total assets it is referred to as equity insolvency.

False

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.)

III, II, IV, and I

Which of the following is a reason to use a partnership as the legal form of a business?

Partnerships avoid the issue of double-taxation faced by corporations.

In partnership liquidation, how are partner salary allocations treated?

Salary allocations are disregarded.

Which of the following must approve a Chapter 11 plan?

The bankruptcy court and the creditors

What is an advantage of filing a Chapter 11 petition?

The opportunity to cancel unfavorable contracts

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?

The partner who has the lowest loss absorption potential

A cash distribution plan involves ranking the partners in terms of their vulnerability to possible losses.

True

In cases of Chapter 11, a private trustee or a debtor in possession can be appointed to oversee the reorganization.

True

When partners withdraw money on a weekly basis it can be referred to a drawing allowance which requires a debit to the drawing account.

True

Drawings

are the same nature as withdrawals.

A petition commencing a case against a corporate debtor

can be filed under either Chapter 7 or Chapter 11 of the bankruptcy act.

If all partners are included in the first installment of an installment liquidation, then in future installments

cash will be distributed according to the residual profit and loss sharing ratios.

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)

debtor in possession.

In a limited partnership, a general partner

has unlimited liability for partnership debt.

Creditor committees are elected

in Chapter 7 cases.

If the partnership agreement provides a formula for the computation of a bonus to the partners, the bonus would be computed

in any manner agreed to by the partners in the partnership agreement.

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

is insolvent in the bankruptcy sense.

In a liquidation under Chapter 7, the trustee

is responsible for converting assets to cash and distributing payments to claimants.

Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as

liabilities to the partnership for which interest shall be paid from the date of the liability.

In the Uniform Partnership Act, partners have

mutual agency.

A simple partnership liquidation requires

partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners.

In a schedule of assumed loss absorptions

the most vulnerable partner is eliminated first.

If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated, then

the partner has an obligation of personal net assets to the other partners.

Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because

these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.

A single creditor

with a $15,775 or more unsecured claim may file a petition for bankruptcy, if there are fewer than 12 unsecured creditors.

The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income, after deduction of the bonus. If the partnership's income is $140,000, how much is Partner Y's bonus allocation?

$12,727

When did Toys R Us originally file for bankruptcy? What kind of bankruptcy filing was it? What was the result?

1974 - Business is sold to Interstate Stores, a retail conglomerate that files for bankruptcy 1978 - Mr. Lazarus takes company public after a restructuring that divests all nontoy businesses 1983 - Opens first Kids 'R' Us stores (which closed in 2003)

A primary difference between voluntary and involuntary bankruptcy petitions is that

creditors file the petition in an involuntary filing.

Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act?

Payments to creditors other than partners are ranked ahead of payments to partners.

In partnership liquidations, what are safe payments?

The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.

A partner assigned his partnership interest to a third party. Which statement best describes the legal ramifications to the assignee?

The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley. At what amount should the computer equipment be credited to Austin's partnership capital?

The fair value at the date of contribution

What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?

The loan is offset against the debit balance in the capital account.

Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation, if the partner with a negative capital balance is personally insolvent?

The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.

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

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.

A limited partnership involves at least one limited partner who is an investor whose risk is limited to his equity investment in the partnership.

True

A partnership is considered insolvent if the cash available after all noncash assets have been converted into cash is not enough to pay partnership creditors.

True

A partnership is solvent if enough resources exist to pay creditors and make a cash distribution to the partners.

True

A statement of realization and liquidation is an activity statement that shows progress toward the liquidation of a debtor's estate.

True

Chapter 7 bankruptcy appoints a trustee to sell off the assets of the company and pay claims to its creditors.

True

If a partner has a debit capital balance at the time of liquidation, the partner may be required to use their personal funds to settle their partnership obligations.

True

If a partnership agreement does not specify the ratios for liquidation, the profit- and loss-sharing ratios are used.

True

Partnerships do not pay federal taxes but must submit financial information to the IRS.

True

The death of a partner results in a dissociation and requires a settlement with the estate of the deceased partner.

True

The dissolution of a partnership involves selling off the assets, settling liabilities, and distributing the proceeds to the partners.

True

The doctrine of equitable subordination allows judges to move unsecured creditors ahead of secured creditors in bankruptcy proceedings in the interest of "fairness".

True

The inability to make payments on time is equity insolvency.

True

The liquidation of a partnership is covered under Section 807 of the Uniform Partnership Act of 1997.

True

U.S. Trustees are appointed by the Attorney General to handle the administrative duties of bankruptcy cases.

True

When a new partner joins the partnership, the old partnership is dissolved, the books are closed and a new partnership agreement is established.

True

When property is invested in the partnership, it is recorded at fair value.

True

Fresh-start reporting results in

a new reporting entity with no retained earnings/deficit balance.

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

an extraordinary item.

A bankruptcy petition filed by a firm's creditors is

an involuntary petition.

A company emerging from bankruptcy will have a reorganization value that

approximates the fair market value of the entity without considering liabilities.

Partnerships

are required to file income tax returns but do not pay Federal income taxes.

Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed. When this happens

creditors may file against an individual partner to recover their claims, or against any combination of partners.

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

creditors may not seek payment for their claims directly from the debtor corporation.

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

issuing an order of relief.

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

leads to full liquidation of the bankrupt company.

What triggered Toys R Us' bankruptcy filing in 2017?

- Market changes & competition - Financing challenges (too much debt, inability to react to market; leveraged buyout exacerbated these trend) - Suppliers and vendors tightened terms with the company right before the holiday season, when they make the most revenue of the year.

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

An income statement is prepared showing gains and losses on sale of assets.

Safe payments are based on the assumptions that all partners are personally solvent and all noncash assets represent possible losses.

False

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

Changes to the management team from the prior entity

In 2017 -- Did Toys R Us file Chapter 7 or Chapter 11 Bankruptcy?

Chapter 11 Bankruptcy

An executory contract is one that has been completely performed but not settled in terms of payment.

False

Any distribution to partners prior to gains and losses being realized and recognized require approval of the majority of the partners.

False

In the absence of a partnership agreement, profit sharing is based on partner contribution.

False

In the bankruptcy process a statement of affairs is prepared and filed by the trustee. The statement of affairs shows the income statement information.

False

In the case of Chapter 7 Liquidation, the stockholders are the first to have their claims satisfied.

False

Installment liquidation is the distribution of cash to partners as it becomes available during the liquidation period but after all liquidation gains and losses are realized.

False