1. Prior to filing a voluntary Chapter 7 bankruptcy petition, Haynes Company pays a supplier $13,000 to satisfy an unsecured claim. Haynes was insolvent at the time. Subsequently, the trustee appointed to oversee this liquidation forces the return of this $13,000. Which of the following is correct?
a. A preference transfer has been voided.
b. All transactions just prior to a voluntary bankruptcy proceeding must be nullified.
c. The supplier should sue for the return of this money.
d. The $13,000 claim becomes a liability with priority.

2. Which of the following is not an expected function of a bankruptcy trustee?
a. Filing a plan of reorganization.
b. Recovering all property belonging to a company.
c. Liquidating noncash assets.
d. Distributing assets to the proper claimants.

3. What is an inherent limitation of the statement of financial affairs?
a. Many of the amounts reported are only estimations that might prove to be inaccurate.
b. The statement is applicable only to a Chapter 11 bankruptcy.
c. The statement covers only a short time, whereas a bankruptcy may last much longer.
d. The figures on the statement vary as to a voluntary and an involuntary bankruptcy.

4. What is a cram down?
a. An agreement about the total amount of money to be reserved to pay creditors who have priority.
b. The bankruptcy court’s confirmation of a reorganization even though a class of creditors or stockholders did not accept it.
c. The filing of an involuntary bankruptcy petition, especially by the holders of partially secured debts.
d. The court’s decision as to whether a particular creditor has priority.

5. On a balance sheet prepared for a company during its reorganization, how are liabilities reported?
a. As current and long term.
b. As monetary and nonmonetary.
c. As subject to compromise and not subject to compromise.
d. As equity related and debt related.

6. On a balance sheet prepared for a company during its reorganization, at what balance are liabilities reported?
a. At the expected amount of the allowed claims.
b. At the present value of the expected future cash flows.
c. At the expected amount of the settlement.
d. At the amount of the anticipated final payment.

7. Which of the following is not a reorganization item for purposes of reporting a company’s income statement during a Chapter 11 bankruptcy?
a. Professional fees.
b. Interest income.
c. Interest expense.
d. Gains and losses on closing facilities.

8. What accounting is made for professional fees incurred during a bankruptcy reorganization?
a. They must be expensed immediately.
b. They must be capitalized and written off over 40 years or less.
c. They must be capitalized until the company emerges from the reorganization.
d. They are either expensed or capitalized, depending on the nature of the expenditure.

9. Which of the following is necessary for a company to use fresh start accounting?
a. The original owners must hold at least 50 percent of the stock of the company when it emerges from bankruptcy.
b. The reorganization value of the company must exceed the value of all assets.
c. The reorganization value of the company must exceed the value of all liabilities.
d. The original owners must hold less than 50 percent of the stock of the company when it emerges from bankruptcy.

10. If the reorganization value of a company emerging from bankruptcy is larger than the values that can be assigned to specific assets, what accounting is made of the difference?
a. Because of conservatism, the difference is simply ignored.
b. The difference is expensed immediately.
c. The difference is capitalized as an intangible asset.
d. The difference is recorded as a professional fee.

11. For a company emerging from bankruptcy, how are its liabilities (other than deferred income taxes) reported?
a. At their historical value.
b. At zero because of fresh start accounting.
c. At the present value of the future cash flows.
d. At the negotiated value less all professional fees incurred in the reorganization.