a) Why doesnt financial distress always cause firm to die?

b) What is absolute priority rule?

c) Consider the following premerger information about form X ad firm Y. FIRM X FIRM Y Total earnings $50,000 $29,000 Shares outstanding 26,000 20,000 Per-share values: Market Book $ 53 $ 21 $19 $9

Assume that form X acquire form Y by paying cash for all shares outstanding at a merger premium of $5 per share. Assuming that neither form has any debt before or after the merger, construct the postmerger balance sheet for form X assuming the use of:

(i) pooling of interests accounting methods and

(ii) purchase accounting methods.

d) Discuss the accounting criteria for determining whether a lease must be reported on the balance sheets. In each case given a rationale for the criterion.

Support your answers with reliable references.