CH 20 Corporations in Financial Difficulty

Chapter 20 - Corporations in Financial Difficulty
Chapter 20
Corporations in Financial Difficulty

Multiple Choice Questions

1. What is defined as a condition in which a company is unable to meet debts as the debts
mature?
A. Deficit
. !iability
C. "nsol#ency
D. Credit s$uee%e

2. &nder a composition a'reement(
A. creditors a'ree to accept less than the face amount of their claims.
. debtors in financial difficulty transfer assets )without recourse.)
C. a creditors* committee is initiated with a plan of settlement proposed by the debtor.
D. the debtor petitions for relief in a ban+ruptcy court.

,. "n which of the followin' ways can debt be restructured?
". Assets can be transferred to the creditor.
"". An e$uity interest can be 'ranted to the creditor.
""". -he terms of the debt can be modified.
A. " and "" only
. " and """ only
C. "" and """ only
D. "( ""( and """

.. &nder which non/udicial action do creditors a'ree to assist the debtor in mana'in' the most
efficient payment of creditors* claims?
A. Debt restructurin' arran'ement
. Creditors* committee mana'ement
C. -ransfer of assets
D. Composition a'reement

20-1
0. A transfer of assets by a company in financial difficulty is considered a sale if1
". the transfer includes a recourse pro#ision allowin' the buyer to return the asset.
"". the transferee obtains the ri'ht to pled'e or e2chan'e the transferred assets.
""". the transferred assets ha#e been isolated from the transferor.
"3. the transferor does not maintain effecti#e control o#er the transferred assets.
A. "( ""( and "3
. oth " and """
C. oth " and ""
D. ""( """( and "3

4. Chapter 11 of the an+ruptcy Code pro#ides for1
". 5eor'ani%ation.
"". !i$uidation.
A. " only
. "" only
C. oth " and ""
D. 6either " nor ""

". 5eor'ani%ation.
"". !i$uidation.
A. " only
. "" only
C. oth " and ""
D. 6either " nor ""

8. -he an+ruptcy 5eform Act contains chapters which deal with1
". "ndi#iduals.
"". Corporations.
""". 9unicipal 'o#ernments.
A. :nly " and ""
. :nly "" and """
C. :nly " and """
D. "( ""( and """

20-2
;. A debtor may file which type of petition when see+in' /udicial protection under the
an+ruptcy 5eform Act?
". 3oluntary
"". "n#oluntary
A. " only
. "" only
C. <ither " or "".
D. 6either " nor ""

10. Creditors may file which type of petition when see+in' remedy under the an+ruptcy
Code?
". 3oluntary
"". "n#oluntary
A. " only
. "" only
C. <ither " or ""
D. 6either " nor ""

11. &nder the an+ruptcy Code( an insol#ent corporation may be1
". 5eor'ani%ed.
"". !i$uidated.
A. "
. ""
C. <ither " or ""
D. 6either " nor ""

12. Which chapters of the an+ruptcy Code deal with corporations?
A. Chapters 1( ,( and 0
. Chapter ;
C. Chapters 7 and 11
D. Chapters 12 and 1,

20-,
1,. Which of the followin' could be true of the proceedin's under Chapter 11 of the
an+ruptcy Code?
A. Always administered by the ban+ruptcy courts.
. -he debtor*s assets are sold and its liabilities e2tin'uished.
C. -he company does not operate durin' this period.
D. -he debtor continues as a business after the reor'ani%ation.

1.. &nder Chapter 11 proceedin's( what represents the fair #alue of the entity before
considerin' liabilities and appro2imates the amount a willin' buyer would pay for the entity*s
assets?
A. 5eor'ani%ation #alue
. Fire sale #alue
C. Fresh start #alue
D. <2cess #alue

10. A reor'ani%ation #alue in e2cess of amounts assi'nable to identifiable assets is1
A. not reported.
. reported as an intan'ible asset called 5eor'ani%ation 3alue in <2cess of Amounts Allocable
to "dentifiable Assets.
C. reported as =oodwill Associated with <2it or Disposal Acti#ities.
D. passed on to prior shareholders of the company.

14. Which of the followin' obser#ations re'ardin' the use of fresh start accountin' is true?
A. "t is always re$uired under Chapter 11 ban+ruptcy proceedin's.
. >rior shareholders will ha#e control of the emer'in' company.
C. "t results in a new reportin' entity.
D. "t is used under Chapter 7 ban+ruptcy proceedin's.

17. ????? ha#e liens( or security interests( on specific assets.
A. @ecured creditors
. Creditors with priority
C. &nsecured creditors
D. Assured creditors

20-.
18. As defined by the an+ruptcy Code( creditors with priority1
". ha#e collateral claim a'ainst specific assets.
"". are unsecured creditors who ha#e priority o#er other unsecured creditors.
""". are the first to be paid from any proceeds a#ailable to unsecured creditors.
A. " only
. "" only
C. "( "" and ""
D. oth "" and """

1;. Which of the followin' obser#ations concernin' claims by 'eneral unsecured creditors is
6:- true?
A. -hey are paid only after secured creditors and unsecured creditors with priority are
satisfied to the e2tent of any le'al limits.
. -hey often recei#e less than the full amount of their claim.
C. -hey are entitled to )preference payments) at the discretion of the debtor*s mana'ement.
D. -he amounts to be paid to them are usually stated as a percenta'e of the total claim.

20. -he payment to 'eneral unsecured creditors is often termed1
A. a )preference payment.)
. a )di#idend.)
C. a )write-off.)
D. a )bonus.)

21. )>reference payments) made by the debtor to one creditor to the detriment of all other
creditors within ;0 days before the ban+ruptcy petition was filed1
A. is reduced from the monies a#ailable to the 'eneral unsecured creditors.
. is usually written off.
C. may be reco#ered and returned to the cash a#ailable for all creditors.
D. are not reco#ered( as mana'ement assurances are bindin'.

22. -he accountin' statement of affairs is prepared1
A. at the end of the reor'ani%ation process.
. at the end of the li$uidation process.
C. at the be'innin' of the reor'ani%ation process.
D. at the be'innin' of the li$uidation process.

20-0
2,. What is the 'eneral form of the trustee*s openin' entry( acceptin' the assets of the debtor
company?

A. :ption A
. :ption
C. :ption C
D. :ption D

2.. Which monthly report shows the results of the trustee*s fiduciary actions be'innin' at the
point the trustee accepts the debtor*s assets?
A. @tatement of affairs
. @tatement of reali%ation and li$uidation
C. @tatement of financial position
D. @tatement of acti#ities

20. -he @tatement of 5eali%ation and !i$uidation contains sections for all the followin' items
e2cept1
A. assets.
. supplementary items.
C. liabilities.
D. stoc+holders e$uity.

24. "n a statement of reali%ation and li$uidation( unusual re#enue items are reported under1
A. assets.
. e2traordinary items.
C. supplementary items.
D. -hese are ne#er reported.

20-4
27. All of the followin' items are reported in a statement of reali%ation and li$uidation
e2cept1
A. Cash
. >repaid assets
C. Depreciable assets AnetB
D. 5ecei#er*s e2penses

28. Which of the followin' items are li+ely to be reported in the supplementary items section
of a statement of reali%ation and li$uidation?
A. Creditors* claims settled durin' the period.
. -rustee*s administration fees.
C. 6ew obli'ations incurred by the trustee.
D. Assets subse$uently ac$uired by the trustee.

:r#ille Company recently petitioned for ban+ruptcy and is now in the process of preparin' a
statement of affairs. -he carryin' #alues and estimated fair #alues of the assets of :r#ille
Company are as follows1

Debts of :r#ille are as follows1

20-7
2;. ased on the precedin' information( what is the total amount of unsecured claims?
A. C11,(000
. C124(000
C. C;,(000
D. C121(000

,0. ased on the precedin' information( what estimated amount will be a#ailable for 'eneral
unsecured creditors upon li$uidation?
A. C28(000
. C;,(000
C. C11,(000
D. C121(000

,1. ased on the precedin' information( what is the estimated di#idend percenta'e?
A. 2, percent
. ;, percent
C. 77 percent
D. 48 percent

20-8
,2. <a'le Company recently petitioned for ban+ruptcy and is now in the process of preparin'
a statement of affairs. -he followin' information has been assembled for this statement1

What amount will be paid to the fully secured creditors and the creditors with priority?

A. :ption A
. :ption
C. :ption C
D. :ption D

,,. A )debtor-in-possession) balance sheet is prepared for a company which1
A. is ha#in' its debts restructured.
. is under'oin' a li$uidation under Chapter 7.
C. is under'oin' a reor'ani%ation under Chapter 11.
D. is in ban+ruptcy reor'ani%ation but mana'ement still controls the company.

20-;
,.. A debtor-in-possession balance sheet should report1
". !iabilities not sub/ect to compromise.
"". !iabilities sub/ect to compromise.
A. " only
. "" only
C. oth " and ""
D. 6either " nor ""

,0. :n a debtor-in-possession income statement( which of the followin' items should be
reported under the headin' )5eor'ani%ation "tems)?
A. @ales
. @ellin' e2penses
C. "ncome ta2 benefit
D. !oss on disposal of assets

Essay Questions

,4. What are the conditions necessary for usin' fresh start reportin' in reor'ani%ation?

20-10
,7. Wilbur Corporation is to be li$uidated under Chapter 7 of the an+ruptcy Code. -he
balance sheet on December ,1( 2008( is as follows1

-he followin' additional information is a#ailable1
1. 9ar+etable securities consist of 2(000 shares of ristol "nc. common stoc+. -he mar+et
#alue per share of the stoc+ is C8. -he stoc+ was pled'ed a'ainst a C20(000( 8 percent note
payable that has accrued interest of C800.
2. Accounts recei#able of C.0(000 are collateral for a C,0(000( 10 percent note payable that
has accrued interest of C,(000.
,. "n#entory with a boo+ #alue of C,0(000 and a current #alue of C,2(000 is pled'ed a'ainst
accounts payable of C40(000. -he appraised #alue of the remainder of the in#entory is
C00(000.
.. :nly C1(000 will be reco#ered from prepaid insurance.
0. !and is appraised at C40(000 and plant and e$uipment at C140(000.
4. "t is estimated that the franchises can be sold for C10(000.
7. All the wa'es payable $ualify for priority.
8. -he mort'a'es are on the land and on a buildin' with a boo+ #alue of C110(000 and an
appraised #alue of C100(000. -he accrued interest on the mort'a'es is C7(000.
;. <stimated le'al and accountin' fees for the li$uidation are C10(000.
5e$uired
a. >repare a statement of affairs as of December ,1( 2008.
b. Compute the estimated percenta'e settlement to unsecured creditors.
20-11

,8. A trustee has been appointed for @mith Company( which is bein' li$uidated under Chapter
7 of the an+ruptcy Code. -he followin' transactions occurred after the assets were
transferred to the trustee1
1. Credit sales by the trustee were C100(000. Cost of 'oods sold were C72(000( consistin' of
all the in#entory transferred from @mith.
2. -he trustee sold all C20(000 worth of mar+etable securities for C10(000.
,. 5ecei#ables collected by the trustee1
:ld1 C28(000 of the C00(000 transferred
6ew1 C40(000
.. Disbursements by the trustee1
:ld current payables1 C,1(000 of the C40(000 transferred
-rustee*s e2penses1 C4(000
0. 5ecorded C2.(000 depreciation on the plant assets of C120(000 transferred from @mith.
5e$uired1
>repare a statement of reali%ation and li$uidation accordin' to the traditional approach
illustrated in the chapter.

,;. riefly e2plain the three classes of creditors specified in the an+ruptcy Code.

20-12
.0. -o obtain cash $uic+ly( DebCo. sold C700(000 of its recei#ables to Finco.( with recourse.
As the accountant for DebCo.( what issues do you need to resol#e in order to determine the
appropriate accountin' treatment?

Chapter 20 Corporations in Financial Difficulty Answer Dey

Multiple Choice Questions

1. What is defined as a condition in which a company is unable to meet debts as the debts
mature?
A. Deficit
. !iability
C. "nsol#ency
D. Credit s$uee%e

AACSB: Reflective Thinking
AICPA: Decision Making

2. &nder a composition a'reement(
A. creditors a'ree to accept less than the face amount of their claims.
. debtors in financial difficulty transfer assets )without recourse.)
C. a creditors* committee is initiated with a plan of settlement proposed by the debtor.
D. the debtor petitions for relief in a ban+ruptcy court.


20-1,
,. "n which of the followin' ways can debt be restructured?
". Assets can be transferred to the creditor.
"". An e$uity interest can be 'ranted to the creditor.
""". -he terms of the debt can be modified.
A. " and "" only
. " and """ only
C. "" and """ only
D. "( ""( and """


.. &nder which non/udicial action do creditors a'ree to assist the debtor in mana'in' the most
efficient payment of creditors* claims?
A. Debt restructurin' arran'ement
B. Creditors* committee mana'ement
C. -ransfer of assets
D. Composition a'reement


0. A transfer of assets by a company in financial difficulty is considered a sale if1
". the transfer includes a recourse pro#ision allowin' the buyer to return the asset.
"". the transferee obtains the ri'ht to pled'e or e2chan'e the transferred assets.
""". the transferred assets ha#e been isolated from the transferor.
"3. the transferor does not maintain effecti#e control o#er the transferred assets.
A. "( ""( and "3
. oth " and """
C. oth " and ""
D. ""( """( and "3


20-1.
". 5eor'ani%ation.
"". !i$uidation.
A. " only
. "" only
C. oth " and ""
D. 6either " nor ""


". 5eor'ani%ation.
"". !i$uidation.
A. " only
B. "" only
C. oth " and ""
D. 6either " nor ""


8. -he an+ruptcy 5eform Act contains chapters which deal with1
". "ndi#iduals.
"". Corporations.
""". 9unicipal 'o#ernments.
A. :nly " and ""
. :nly "" and """
C. :nly " and """
D. "( ""( and """


20-10
;. A debtor may file which type of petition when see+in' /udicial protection under the
an+ruptcy 5eform Act?
". 3oluntary
"". "n#oluntary
A. " only
. "" only
C. <ither " or "".
D. 6either " nor ""


10. Creditors may file which type of petition when see+in' remedy under the an+ruptcy
Code?
". 3oluntary
"". "n#oluntary
A. " only
B. "" only
C. <ither " or ""
D. 6either " nor ""


11. &nder the an+ruptcy Code( an insol#ent corporation may be1
". 5eor'ani%ed.
"". !i$uidated.
A. "
. ""
C. <ither " or ""
D. 6either " nor ""


20-14
12. Which chapters of the an+ruptcy Code deal with corporations?
A. Chapters 1( ,( and 0
. Chapter ;
C. Chapters 7 and 11
D. Chapters 12 and 1,


1,. Which of the followin' could be true of the proceedin's under Chapter 11 of the
an+ruptcy Code?
A. Always administered by the ban+ruptcy courts.
. -he debtor*s assets are sold and its liabilities e2tin'uished.
C. -he company does not operate durin' this period.
D. -he debtor continues as a business after the reor'ani%ation.


1.. &nder Chapter 11 proceedin's( what represents the fair #alue of the entity before
considerin' liabilities and appro2imates the amount a willin' buyer would pay for the entity*s
assets?
A. 5eor'ani%ation #alue
. Fire sale #alue
C. Fresh start #alue
D. <2cess #alue


20-17
10. A reor'ani%ation #alue in e2cess of amounts assi'nable to identifiable assets is1
A. not reported.
B. reported as an intan'ible asset called 5eor'ani%ation 3alue in <2cess of Amounts Allocable
to "dentifiable Assets.
C. reported as =oodwill Associated with <2it or Disposal Acti#ities.
D. passed on to prior shareholders of the company.

AICPA: Reporting

14. Which of the followin' obser#ations re'ardin' the use of fresh start accountin' is true?
A. "t is always re$uired under Chapter 11 ban+ruptcy proceedin's.
. >rior shareholders will ha#e control of the emer'in' company.
C. "t results in a new reportin' entity.
D. "t is used under Chapter 7 ban+ruptcy proceedin's.


17. ????? ha#e liens( or security interests( on specific assets.
A. @ecured creditors
. Creditors with priority
C. &nsecured creditors
D. Assured creditors


20-18
18. As defined by the an+ruptcy Code( creditors with priority1
". ha#e collateral claim a'ainst specific assets.
"". are unsecured creditors who ha#e priority o#er other unsecured creditors.
""". are the first to be paid from any proceeds a#ailable to unsecured creditors.
A. " only
. "" only
C. "( "" and ""
D. oth "" and """


1;. Which of the followin' obser#ations concernin' claims by 'eneral unsecured creditors is
6:- true?
A. -hey are paid only after secured creditors and unsecured creditors with priority are
satisfied to the e2tent of any le'al limits.
. -hey often recei#e less than the full amount of their claim.
C. -hey are entitled to )preference payments) at the discretion of the debtor*s mana'ement.
D. -he amounts to be paid to them are usually stated as a percenta'e of the total claim.


20. -he payment to 'eneral unsecured creditors is often termed1
A. a )preference payment.)
B. a )di#idend.)
C. a )write-off.)
D. a )bonus.)


20-1;
21. )>reference payments) made by the debtor to one creditor to the detriment of all other
creditors within ;0 days before the ban+ruptcy petition was filed1
A. is reduced from the monies a#ailable to the 'eneral unsecured creditors.
. is usually written off.
C. may be reco#ered and returned to the cash a#ailable for all creditors.
D. are not reco#ered( as mana'ement assurances are bindin'.


22. -he accountin' statement of affairs is prepared1
A. at the end of the reor'ani%ation process.
. at the end of the li$uidation process.
C. at the be'innin' of the reor'ani%ation process.
D. at the be'innin' of the li$uidation process.


2,. What is the 'eneral form of the trustee*s openin' entry( acceptin' the assets of the debtor
company?

A. :ption A
. :ption
C. :ption C
D. :ption D


20-20
2.. Which monthly report shows the results of the trustee*s fiduciary actions be'innin' at the
point the trustee accepts the debtor*s assets?
A. @tatement of affairs
B. @tatement of reali%ation and li$uidation
C. @tatement of financial position
D. @tatement of acti#ities


20. -he @tatement of 5eali%ation and !i$uidation contains sections for all the followin' items
e2cept1
A. assets.
. supplementary items.
C. liabilities.
D. stoc+holders e$uity.


24. "n a statement of reali%ation and li$uidation( unusual re#enue items are reported under1
A. assets.
. e2traordinary items.
C. supplementary items.
D. -hese are ne#er reported.


27. All of the followin' items are reported in a statement of reali%ation and li$uidation
e2cept1
A. Cash
. >repaid assets
C. Depreciable assets AnetB
D. 5ecei#er*s e2penses


20-21
28. Which of the followin' items are li+ely to be reported in the supplementary items section
of a statement of reali%ation and li$uidation?
A. Creditors* claims settled durin' the period.
B. -rustee*s administration fees.
C. 6ew obli'ations incurred by the trustee.
D. Assets subse$uently ac$uired by the trustee.


:r#ille Company recently petitioned for ban+ruptcy and is now in the process of preparin' a
statement of affairs. -he carryin' #alues and estimated fair #alues of the assets of :r#ille
Company are as follows1

Debts of :r#ille are as follows1

20-22
2;. ased on the precedin' information( what is the total amount of unsecured claims?
A. C11,(000
. C124(000
C. C;,(000
D. C121(000

AACSB: Analytic
AICPA: Measurement

,0. ased on the precedin' information( what estimated amount will be a#ailable for 'eneral
unsecured creditors upon li$uidation?
A. C28(000
B. C;,(000
C. C11,(000
D. C121(000

AACSB: Analytic
AICPA: Measurement

,1. ased on the precedin' information( what is the estimated di#idend percenta'e?
A. 2, percent
. ;, percent
C. 77 percent
D. 48 percent

AACSB: Analytic
AICPA: Measurement

20-2,
,2. <a'le Company recently petitioned for ban+ruptcy and is now in the process of preparin'
a statement of affairs. -he followin' information has been assembled for this statement1

What amount will be paid to the fully secured creditors and the creditors with priority?

A. :ption A
. :ption
C. :ption C
D. :ption D

AACSB: Analytic
AICPA: Measurement

,,. A )debtor-in-possession) balance sheet is prepared for a company which1
A. is ha#in' its debts restructured.
. is under'oin' a li$uidation under Chapter 7.
C. is under'oin' a reor'ani%ation under Chapter 11.
D. is in ban+ruptcy reor'ani%ation but mana'ement still controls the company.


20-2.
,.. A debtor-in-possession balance sheet should report1
". !iabilities not sub/ect to compromise.
"". !iabilities sub/ect to compromise.
A. " only
. "" only
C. oth " and ""
D. 6either " nor ""


,0. :n a debtor-in-possession income statement( which of the followin' items should be
reported under the headin' )5eor'ani%ation "tems)?
A. @ales
. @ellin' e2penses
C. "ncome ta2 benefit
D. !oss on disposal of assets


Essay Questions

,4. What are the conditions necessary for usin' fresh start reportin' in reor'ani%ation?
-he conditions are1
1. -he reor'ani%ation #alue of the assets of the emer'in' entity immediately before the date of
confirmation is less than the total of all postpetition liabilities and allowed claims.
2. Eolders of e2istin' #otin' shares immediately before confirmation recei#e less than 00
percent of the #otin' shares of the emer'in' entity. -his implies that the prior shareholders
ha#e lost control of the emer'in' company.

AACSB: Communication
AICPA: Critical Thinking

20-20
,7. Wilbur Corporation is to be li$uidated under Chapter 7 of the an+ruptcy Code. -he
balance sheet on December ,1( 2008( is as follows1

-he followin' additional information is a#ailable1
1. 9ar+etable securities consist of 2(000 shares of ristol "nc. common stoc+. -he mar+et
#alue per share of the stoc+ is C8. -he stoc+ was pled'ed a'ainst a C20(000( 8 percent note
payable that has accrued interest of C800.
2. Accounts recei#able of C.0(000 are collateral for a C,0(000( 10 percent note payable that
has accrued interest of C,(000.
,. "n#entory with a boo+ #alue of C,0(000 and a current #alue of C,2(000 is pled'ed a'ainst
accounts payable of C40(000. -he appraised #alue of the remainder of the in#entory is
C00(000.
.. :nly C1(000 will be reco#ered from prepaid insurance.
0. !and is appraised at C40(000 and plant and e$uipment at C140(000.
4. "t is estimated that the franchises can be sold for C10(000.
7. All the wa'es payable $ualify for priority.
8. -he mort'a'es are on the land and on a buildin' with a boo+ #alue of C110(000 and an
appraised #alue of C100(000. -he accrued interest on the mort'a'es is C7(000.
;. <stimated le'al and accountin' fees for the li$uidation are C10(000.
5e$uired
a. >repare a statement of affairs as of December ,1( 2008.
b. Compute the estimated percenta'e settlement to unsecured creditors.
20-24

20-27
bB

AACSB: Analytic
AICPA: Measurement

20-28
,8. A trustee has been appointed for @mith Company( which is bein' li$uidated under Chapter
7 of the an+ruptcy Code. -he followin' transactions occurred after the assets were
transferred to the trustee1
1. Credit sales by the trustee were C100(000. Cost of 'oods sold were C72(000( consistin' of
all the in#entory transferred from @mith.
2. -he trustee sold all C20(000 worth of mar+etable securities for C10(000.
,. 5ecei#ables collected by the trustee1
:ld1 C28(000 of the C00(000 transferred
6ew1 C40(000
.. Disbursements by the trustee1
:ld current payables1 C,1(000 of the C40(000 transferred
-rustee*s e2penses1 C4(000
0. 5ecorded C2.(000 depreciation on the plant assets of C120(000 transferred from @mith.
5e$uired1
>repare a statement of reali%ation and li$uidation accordin' to the traditional approach
illustrated in the chapter.
20-2;

AACSB: Analytic
AICPA: Measurement

20-,0
,;. riefly e2plain the three classes of creditors specified in the an+ruptcy Code.
-he an+ruptcy Code specifies three classes of creditors whose claims ha#e the followin'
priorities1 A1B secured creditors( A2B creditors with priority( and A,B unsecured creditors.
Secure creitors ha#e liens( or security interests( on specific assets( often called )collateral.)
A creditor with such a le'al interest in a specific asset has the hi'hest priority claim on that
asset. Creitors !ith priority are unsecured creditors ha#in' no collateral claim a'ainst
specific assets( who ha#e priority o#er other unsecured creditors. Creditors with priority are
the first to be paid from any proceeds a#ailable to unsecured creditors. "eneral unsecure
creitors are paid only after secured creditors and unsecured creditors with priority are
satisfied to the e2tent of any le'al limits. :ften the 'eneral unsecured creditors recei#e less
than the full amount of their claim.


.0. -o obtain cash $uic+ly( DebCo. sold C700(000 of its recei#ables to Finco.( with recourse.
As the accountant for DebCo.( what issues do you need to resol#e in order to determine the
appropriate accountin' treatment?
@ellin' recei#ables )with recourse) means that the debtor must accept the return of any
uncollectible recei#ables that were transferred. FA@ 1.0( )Accountin' for -ransfers and
@er#icin' of Financial Assets and e2tin'uishment of !iabilities) specifies that a transfer of
financial assets is considered a sale only if the transferor has surrendered control o#er the
transferred assets. @ellin' the recei#ables with recourse does not remo#e ultimate control from
the debtor.


20-,1

CH 20 Corporations in Financial Difficulty

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Chapter 20 - Corporations in Financial Difficulty

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