Question

Johnson joined other creditors of Alpha Company in a composition agreement seeking to avoid the necessity of a bankruptcy proceeding against Alpha. Which statement describes the composition agreement? It provides for the appointment of a receiver to take over and operate the debtor’s business. It provides that the creditors will receive less than the full amount of their claims. It must be approved by all creditors. It provides a temporary delay, not to exceed six months, insofar as the debtor’s obligation to repay thedebts included in the composition is concerned. LINK TO TEXT LINK TO TEXT

Freeman Company ceased doing business and is in bankruptcy. Among the claimants are employees seeking unpaid wages. The following statements describe the possible status of such claims in a bankruptcy proceeding or legal limitations placed upon them. Which one is an incorrect statement? Such claims include wages earned within 180 days before the filing of the bankruptcy petition, but not to exceed $4,650 in amount. If a priority is afforded such claims, it cannot exceed $4,650 per wage earner. The amounts of excess wages not entitled to a priority are mere unsecured claims. Such claims are entitled to priority. LINK TO TEXT LINK TO TEXT

Which of the entities listed is not subject to an involuntary bankruptcy petition? A municipality. A partnership. A retailing corporation. A wholesaler company. LINK TO TEXT LINK TO TEXT

The highest priority for payment of unsecured claims in a bankruptcy proceeding is: Wages owed to an insolvent employee. Wages up to $4,650 earned within three months before the petition. Unpaid federal income taxes. Administrative expenses of the bankruptcy. LINK TO TEXT LINK TO TEXT

Which of the following situations that arise because of a debtor’s financial difficulties and would not otherwise be acceptable to the creditor must be accounted for as a troubled debt restructuring? Because of a court order, a creditor reduces the stated interest rate for the remaining original life of the debt. Because of a court order, a creditor accepts as full satisfaction of its receivable a building the fair value of which equals the creditor’s recorded investment in the receivable. As part of a negotiated settlement, a creditor accepts as full satisfaction of its receivable a building the fair value of which equals the debtor’s carrying amount of the payable. As part of a negotiated settlement designed to maintain a relationship with a debtor, a creditor reducesthe effective interest rate on debt outstanding to reflect the lower market interest rate currently applicableto debt of that risk class.

Answer 1

Johnson joined other creditors of Alpha Company in a composition agreement seeking to avoid the necessity of a bankruptcy proceeding against Alpha. Which statement describes the composition agreement?
It provides for the appointment of a receiver to take over and operate the debtor’s business.
It provides that the creditors will receive less than the full amount of their claims.	Correct	A composition with creditors is a common-law contractual undertaking between the debtor and the creditors. The participating creditors agree to extend time for payments, take lesser sums in satisfaction of the debts owed, or accept some other plan of financial adjustment. Under general contract law, the original debts will notbe discharged until the debtor has performed the new obligations
It must be approved by all creditors.
It provides a temporary delay, not to exceed six months, insofar as the debtor’s obligation to repay thedebts included in the composition is concerned.
Freeman Company ceased doing business and is in bankruptcy. Among the claimants are employees seeking unpaid wages. The following statements describe the possible status of such claims in a bankruptcy proceeding or legal limitations placed upon them. Which one is an incorrect statement?
Such claims include wages earned within 180 days before the filing of the bankruptcy petition, but not to exceed $4,650 in amount.
If a priority is afforded such claims, it cannot exceed $4,650 per wage earner.
The amounts of excess wages not entitled to a priority are mere unsecured claims.	Correct	The claim is reduced to a general unsecured claim.
Such claims are entitled to priority.
Which of the entities listed is not subject to an involuntary bankruptcy petition?
A municipality.		Correct
A partnership.
A retailing corporation.		Involuntary bankruptcies can  not be filed against banks, insurance companies, not-for-profit organizations, credit unions, farmers, or family farmers.
A wholesaler company.
The highest priority for payment of unsecured claims in a bankruptcy proceeding is:
Wages owed to an insolvent employee.	Correct	Moneys owed to employees are given special status.
Wages up to $4,650 earned within three months before the petition.
Unpaid federal income taxes.
Administrative expenses of the bankruptcy.
Which of the following situations that arise because of a debtor’s financial difficulties and would not otherwise be acceptable to the creditor must be accounted for as a troubled debt restructuring?
Because of a court order, a creditor reduces the stated interest rate for the remaining original life of the debt.	Correct
Because of a court order, a creditor accepts as full satisfaction of its receivable a building the fair value of which equals the creditor’s recorded investment in the receivable.
As part of a negotiated settlement, a creditor accepts as full satisfaction of its receivable a building the fair value of which equals the debtor’s carrying amount of the payable.
As part of a negotiated settlement designed to maintain a relationship with a debtor, a creditor reducesthe effective interest rate on debt outstanding to reflect the lower market interest rate currently applicableto debt of that risk class.