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Corporate Liquidations
and Reorganizations
to accompany
Advanced Accounting, 11th edition
by Beams, Anthony, Bettinghaus, and Smith
1: TYPES OF BANKRUPTCIES
Bankruptcy insolvency
Having total debts in excess of the fair value
of assets
May be liquidated, or
Reorganized
Copyright 2012 Pearson Education,
18-4
Inc. Publishing as Prentice Hall
Types of Bankruptcies
Chapter 7: Liquidation
Trustee appointed to sell assets of
business
Chapter 9: Adjustment of Debt of a Municipality
Chapter 11: Reorganization
Debtor is expected to be rehabilitated
Chapter 12: Farmers
Chapter 13: Adjustment of Debts of an Individual
Copyright 2012 Pearson Education,
18-5
Inc. Publishing as Prentice Hall
Characteristics
Voluntary bankruptcy proceedings
Filed by debtor
Involuntary bankruptcy proceedings
Filed by creditor or group of creditors
Court action
Dismiss a case
Accept the petition
Change form
Chapter 11 reorganization Chapter 7 liquidation
Copyright 2012 Pearson Education,
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Inc. Publishing as Prentice Hall
Corporate Liquidations and Reorganizations
2: TRUSTEE
RESPONSIBILITIES AND
ACCOUNTING
3: FINANCIAL REPORTING
DURING REORGANIZATION
4: EMERGING FROM
REORGANIZATION
To qualify,
1. Revaluation value immediately before the
reorganization plan is confirmed must be less
than post-petition liabilities and allowed
claims, and
2. Holders of existing voting shares receive less
than 50% of emerging entity
Copyright 2012 Pearson Education,
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Inc. Publishing as Prentice Hall
Apply Fresh Start Reporting
Allocated reorganization value to identifiable
assets
Unallocated amount is an intangible called
Reorganization value in excess of amounts allocated
to identifiable assets
Liabilities at current value at confirmation date
Deferred tax benefits are first applied to reduce any
intangible asset recorded
Prepare final reports of old entity
The effects of adjustments to asset and liability
accounts are shown, so that ending balance sheet
of old entityCopyright
= beginning
2012 Pearsonbalance
Education, sheet of new entity
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Continued Reporting of Old Company
Commonstock(old) 500
Commonstock(new) 100
Additionalpaidincapital 400
exchange of stock with owners
Debt forgiveness
!
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Copyright 2012 Pearson Education,
18-43
Inc. Publishing as Prentice Hall