Ch20 - Ch20 Student: _ 1. Chapter 7 of the Bankruptcy Act...

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Ch20 Student: ___________________________________________________________________________ 1. Chapter 7 of the Bankruptcy Act provides for: I. Reorganization. II. Liquidation. A. I. B. II. C. Both I and II. D. Neither I nor II. 2. A transfer of assets by a company in financial difficulty is considered a sale if: I. the transfer includes a recourse provision allowing the buyer to return the asset. II. the buyer cannot pledge or exchange the transferred assets. A. I. B. II. C. Both I and II. D. Neither I nor II. 3. In a troubled debt restructuring, the debtor has an extraordinary gain (assuming the amount is material): A. if the book value of the assets transferred to the creditor is less than the market value of the assets at the date of the restructure. B. if the carrying value of the debt at the date of restructure is greater than the fair market value of the assets transferred to the creditor. C. if the condition in B exists, and the restructuring is unusual and infrequent. D. under no circumstances. On June 5, 2004, Sportco owed a local bank $800,000 on a note payable, plus accrued interest of $50,000. The bank agreed to accept a parcel of land owned by Sportco in settlement of the debt. The land cost Sportco $200,000 and had a fair market value of $700,000 on June 5. 4. Refer to the above information. Ignoring income taxes, Sportco should report the following amounts on its income statement. A. B. C. D. 5. Refer to the above information. Ignoring income taxes, what amount of gain should Sportco classify in the income statement as income from continuing operations? A. $0 B. $150,000 C. $500,000 D. $650,000
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6. Refer to the above information. The bank should: A. report an extraordinary loss from settlement of debt. B. record the acquisition of the land at Sportco's carrying value. C. reduce Notes Receivable—Sportco to the value of the land. D. charge allowance for bad debts in an amount equal to Sportco's gain on settlement of debt. 7. Which of the following assets can be a source of amounts available to satisfy unsecured claims when liquidating a company? I. assets pledged with fully secured creditors II. free assets A. I. B. II. C. Both I and II. D. Neither I nor II. 8. Scott Corporation has experienced financial difficulties and has restructured its debt with State Bank. On the date of restructure, Scott owed State Bank $4,000,000 of principal on a note payable and $500,000 of accrued interest. Under the terms of the restructure, State Bank agreed to (1) reduce the interest rate from 10% to 5%, and (2) forgive $400,000 of the accrued interest. The note principal and interest are due one year from the date of the restructure. Ignoring income taxes, as a result of the restructure Scott should report a gain of: A. $ 0. B. $100,000.
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This note was uploaded on 05/26/2011 for the course ACCT 410 taught by Professor Khalib during the Spring '11 term at Strayer.

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Ch20 - Ch20 Student: _ 1. Chapter 7 of the Bankruptcy Act...

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