Question 12

The plan of reorganizing for Sualihu Companies, Inc., was approved by the court, stockholders, and creditors on December 31, 20X1. The plan calls for a general restructuring of all of Sualihus debt. The companys liability and capital accounts on December 31, 20X1, are as follows:

Accounts payable (postpetition)

$30,000

Liabilities subject to compromise:

Accounts payable

80,000

Notes payable, 10%, unsecured

150,000

Interest payable

40,000

Bonds payable, 12%

200,000

Common stock, $1 par

100,000

Additional Paid-In Capital

200,000

Retained Earnings (deficit)

(178,000)

Total

$622,000

A total of $30,000 of accounts payable has been incurred since the company filed its petition for relief under Chapter 11. No other liabilities have been incurred since the petition was filed. No payments have been made on the liabilities subject to the compromise that existed on the petition date. Under the terms of the reorganization plan:

The accounts payable creditors existing at the date the petition was filed agree to accept $76,000 of net accounts receivable in full settlement of their claims. The holders of the 10% notes payable of $150,000 plus $16,000 of interest payable agree to accept land having a fair value of $125,000 and a book value of $95,000. The holders of the 12% bonds payable of $200,000 plus $24,000 of interest payable agree to cancel accrued interest of $18,000, accept cash payment of the remaining $6,000 of interest, and accept a secured interest in the companys equipment in exchange for extending the term of the bonds for an additional year at no interest. The common shareholders agree to reduce the deficit by changing the stocks par value to $2 per share and eliminating any remaining deficit after recognition of all gains or losses from the debt restructuring transactions specified in the plan of reorganization. The deficit will be eliminated by reducing additional paid-in capital.

Under Clause [b], Sualihu Companies Inc. will record a gain of...

25,000

16,000

125,000

41,000

Question 19

Goodluck Inc. is insolvent. Its liabilities exceed its assets by $15 million. Mohammed, its president, and other close family members own Goodluck. Mohammed, whose assets are estimated at less $2 million, guaranteed the corporation's loans. A consortium of banks is the principal creditor of Goodluck, having lent it $9 million, the bulk of which is unsecured. The banks have decided to seek reorganization of Goodluck, and Mohammed has agreed to cooperate. Regarding the proposed reorganization:

Mohammed's cooperation is necessary for signing the petition for a reorganization.

If a petition for bankruptcy is filed against Goodluck, Mohammed also will have personal bankruptcy status resolved and relief granted.

Only a duly constituted creditors creditors' committee may file a plan of reorganization of Goodluck.

Goodluck will remain in possession of its assets unless a request is made to the court to appoint a trustee.

Question 20

A condition that must exist for filing an involuntary bankruptcy petition is...

the debtor must have debt of at least $10,000.

if the debtor has 12 or more creditors, a majority of them must sign the petition.

if the debtor has 12 or more creditors, only one need sign the petition, but that creditor must be owed at least $5,000.

if the debtor has 12 or more creditors, the required number signing the petition must be owed at least $5,000 in total.

21)

Mohammed is in serious financial difficulty and is unable to meet current unsecured obligations of $20,000 to some 14 creditors who are demanding immediate payment. Mohammed owes Aminu $5,000, and Aminu has decided to file an involuntary petition against Mohammed. Which of the following is necessary for Aminu?

Aminu must be joined by at least two other creditors.

Mohammed must have commited a fraudulent act within one year of the filing.

Aminu must allege and subsequently establish that Mohammed's liabilities exceed its assets upon fair valuation.

Aminu must be a secured creditor