How is the account Reorganization Value in Excess of Amount Assigned to Identifiable Assets used during a Chapter 11 reorganization?
> Take a look back at Figure 31.1 to answer the following questions: a. If you have $100, how many euros can you get? b. How much is one euro worth in dollars? c. If you have 5 million euros, how many dollars do you have? d. Which is worth more, a New Zeal
> Suppose the spot and six-month forward rates on the Norwegian krone are Kr 6.97 and Kr 7.06, respectively. The annual risk-free rate in the United States is 3 percent, and the annual risk-free rate in Norway is 5 percent. a. Is there an arbitrage opportu
> Leeloo, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. Based on the following information, determine if the company should proceed or not. Describe the buildup of receivables in this case. The r
> Why do so many firms file for legal bankruptcy when private workouts are so much less expensive?
> Acquiring firm stockholders seem to benefit little from takeovers. Why is this finding a puzzle? What are some of the reasons offered for it?
> Explain why a swap is effectively a series of forward contracts. Suppose a firm enters a swap agreement with a swap dealer. Describe the nature of the default risk faced by both parties.
> Last month, BlueSky Airline announced that it would stretch out its bill payments to 45 days from 30 days. The reason given was that the company wanted to “control costs and optimize cash flow.” The increased payables period will be in effect for all of
> It is sometimes argued that excess cash held by a firm can aggravate agency problems (discussed in Chapter 1) and, more generally, reduce incentives for shareholder wealth maximization. How would you describe the issue here?
> We discussed five international capital market relationships: Relative PPP, IRP, UFR, UIP, and the international Fisher effect. Which of these would you expect to hold most closely? Which do you think would be most likely to be violated?
> If a company’s inventory carrying costs are $5 million per year and its fixed order costs are $8 million per year, do you think the firm keeps too much inventory on hand or too little? Why?
> Suppose a company in which you own stock has attracted two takeover offers. Would it ever make sense for your company’s management to favor the lower offer? Does the form of payment affect your answer at all?
> You place an order for 400 units of inventory at a unit price of $115. The supplier offers terms of 1/10, net 30. a. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit? b. What is the discoun
> Refer to Table 25.2 in the text to answer this question. Suppose today is January 8, 2015, and your firm produces breakfast cereal and needs 140,000 bushels of corn in March 2015 for an upcoming promotion. You would like to lock in your costs today bec
> The following is the sales budget for Shleifer, Inc., for the first quarter of 2016: Credit sales are collected as follows: 65 percent in the month of the sale. 20 percent in the month after the sale. 15 percent in the second month after the sale. The
> No More Pencils, Inc., disburses checks every two weeks that average $61,700 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .015 percent per day for
> Suppose your company imports computer motherboards from Singapore. The exchange rate is given in Figure 31.1. You have just placed an order for 30,000 motherboards at a cost to you of 141.30 Singapore dollars each. You will pay for the shipment when it a
> Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $2.6 million per
> In the previous problem, are the shareholders of Firm T better off with the cash offer or the stock offer? At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers?
> Ethics Several firms have entered bankruptcy, or threatened to enter bankruptcy, at least in part as a means of reducing labor costs. Whether this move is ethical, or proper, is hotly debated. Is this an ethical use of bankruptcy?
> A company has a large bond issue maturing in one year. When it matures, the company will float a new issue. Current interest rates are attractive, and the company is concerned that rates next year will be higher. What are some hedging strategies that the
> Last month, BlueSky Airline announced that it would stretch out its bill payments to 45 days from 30 days. The reason given was that the company wanted to “control costs and optimize cash flow.” The increased payables period will be in effect for all of
> If a company moves to a JIT inventory management system, what will happen to inventory turnover? What will happen to total asset turnover? What will happen to return on equity (ROE)? (Hint: Remember the DuPont equation from Chapter 3.)
> Holmes, Inc., has offered $295 million cash for all of the common stock in Watson Corporation. Based on recent market information, Watson is worth $278 million as an independent operation. If the merger makes economic sense for Holmes, what is the minimu
> Blue Steel Community Bank has the following market value balance sheet: a. What is the duration of the assets? b. What is the duration of the liabilities? c. Is the bank immune to interest rate risk? Market Value Duration Asset or Liability (in $ m
> Suppose the current exchange rate for the Polish zloty is Z 3.29. The expected exchange rate in three years is Z 3.41. What is the difference in the annual inflation rates for the United States and Poland over this period? Assume that the anticipated rat
> The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, 5 days past due. If annual credit sales are $8.95 million, what is the company’s balance sheet amount in accounts receivable?
> Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $12,600. a.
> The Thakor Corporation’s purchases from suppliers in a quarter are equal to 75 percent of the next quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 20 percent of sales, and
> It takes Cookie Cutter Modular Homes, Inc., about five days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce
> For each of the short-term marketable securities given here, provide an example of the potential disadvantages the investment has for meeting a corporation’s cash management goals: a. U.S. Treasury bills. b. Ordinary preferred stock. c. Negotiable certif
> Some countries encourage movements in their exchange rate relative to those of some other country as a short-term means of addressing foreign trade imbalances. For each of the following scenarios, evaluate the impact the announcement would have on an Ame
> Ethics Firms sometimes use the threat of a bankruptcy filing to force creditors to renegotiate terms. Critics argue that in such cases the firm is using bankruptcy laws “as a sword rather than a shield.” Is this an ethical tactic?
> What types of actions might the management of a firm take to fight a hostile acquisition bid from an unwanted suitor? How do the target firm shareholders benefit from the defensive tactics of their management team? How are the target firm shareholders ha
> Indicate the impact of the following corporate actions on cash, using the letter I for an increase, D for a decrease, or N when no change occurs. a. A dividend is paid with funds received from a sale of debt. b. Real estate is purchased and paid for with
> Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the company’s financial performance. Dan graduated from college five years ago with a finance degree, an
> Lear 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. Which is the incorrect statement? a.
> The U.S. trustee in each of the federal judicial districts is an official appointed by the U.S. at torney general to oversee the administration of bankruptcy cases or private trustees in specific cases. You seek information on the selection of a trustee
> You are working on a report regarding bankruptcies. You need to locate more information and have heard that the U.S. bankruptcy courts have a website that would be useful. Locate the website using a search engine. (Hint: A helpful search term may be “U
> Items 1 through 6 represent various transactions pertaining to Crest Haven, a voluntary health and welfare organization, for the year ended December 31, 20X2. The information presented includes a list of how transactions could affect the statement of act
> Match the transactions on the left with their effects on the statement of changes in net assets on the right for a private, not-for-profit hospital. Effects of Transactions on Statement of Changes in Net Assets Transactions 1. Billed patients for
> How are the sales of assets reported on the statement of realization and liquidation?
> The plan of reorganization must be approved by a. At least one-third of all creditors who hold at least half of the total debt. b. At least half of all creditors who hold at least half of the total debt. c. At least half of all creditor
> What are the rights of creditors with priority in a Chapter 7 liquidation?
> What financial statements must a company file during a Chapter 11 reorganization?
> What is the difference between a Chapter 7 action and a Chapter 11 bankruptcy action?
> What are the nonjudicial actions available to a financially distressed company? What judicial actions are available?
> What are the financial reporting responsibilities of a trustee who accepts the debtor company’s assets in a Chapter 7 liquidation?
> How is the statement of affairs used in planning an anticipated liquidation?
> What conditions must occur for a company in reorganization to use fresh start accounting?
> What is usually included in the plan of reorganization filed as part of a Chapter 11 reorganization?
> Under what circumstances may an involuntary petition for relief be filed? Who files this petition?
> A condition that must exist for filing an involuntary bankruptcy petition is a. The debtor must have debts of at least $10,000. b. If the debtor has 12 or more creditors, a majority of them must sign the petition. c. If the debtor has 1
> Following is a list of transactions and events that may occur in private, not-for-profit entities. Indicate where each transaction or event should be reported on the entity’s statement of cash flows Assume that the indirect method of reporting operating
> The following information pertains to United Ways, a private voluntary health and welfare organization, for the year ended December 31, 20X3. The following transactions occurred during the year ended December 31, 20X3: 1. Received cash donations of $
> Determine whether each of the following is true or false. Assume that each organization is a private, not-for-profit entity. It is possible that an item need not be reported on the hospital’s statement of operations. 1. A statement of functional exp
> Smallville Community Hospital, a not-for-profit hospital, needs to evaluate a number of items to determine their proper placement on its statement of operations (either above or below the performance measure of Excess of Revenues over Expenses. Requ
> Alpha Hospital, a large not-for-profit organization, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Required: For items 1 through 6, indicate the effect of the transaction on Alphaâ€
> Name Brand Company is to be liquidated under Chapter 7 of the Bankruptcy Code. The balance sheet on July 31, 20X1, follows: Additional Information: 1. Marketable securities consist of 1,000 shares of Wooly Inc. common stock. The stockâ€
> Buckwall University (BU), a private not-for-profit university, had the following transactions during the year ended June 30, 20X8: 1. Assessed students $2,000,000 for tuition for the winter semester, starting in January 20X8. 2. Received $1,000,00
> Match the transactions on the left with their effects on the statement of activities on the right for a voluntary health and welfare organization. A transaction may have more than one effect. Effects of Transactions on Transactions Statement of Ac
> During the recent recession, Polydorous Inc. accumulated a deficit in retained earnings. Although still operating at a loss, the company posted better results during 20X1. Polydorous is having trouble paying suppliers on time and is paying interest whe
> The following information is for funds used to account for the transactions of the Hospital of Havencrest, which is operated by a religious organization. The balances in the accounts are as of June 30, 20X8, the end of the hospital’s fi
> Among other provisions, a Chapter 11 plan of reorganization must a. Rank claims according to their liquidation priorities. b. Not impair claims of secured creditors. c. Provide adequate means for the plan’s execution. d. Treat all
> DeKalb Hospital, a large not-for-profit organization, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. For each of the six items presented, select the best match from the Match List. Transac
> Following are four independent transactions or events that relate to a local government and a voluntary health and welfare organization: 1. Made a disbursement of $25,000 from the general fund unrestricted assets for the cash purchase of new equipment.
> Following are the adjusted current funds trial balances of Community Association for Children With Disabilities, a voluntary health and welfare organization, on June 30, 20X4: Required: a. Prepare a statement of activities for the year ended June
> The postclosing trial balance of the general fund of Serene Hospital, a not-for-profit entity, on December 31, 20X1, was as follows: During 20X2 the following transactions occurred: 1. Provided the value of patient services, $6,160,000. 2. App
> A group of civic-minded merchants in Eldora organized the Committee of 100 for establishing the Community Sports Club, a not-for-profit sports organization for local youth. Each of the committee’s 100 members contributed $1,000 toward
> Brookdale Hospital hired an inexperienced controller early in 20X4. Near the end of 20X4, the board of directors decided to conduct a major fund-raising campaign. They wished to have the December 31, 20X4, statement of financial position for Brookdale fu
> Friendly College is a small, privately supported liberal arts college. The college uses a fund structure; however, it prepares its financial statements in conformance with ASC 958. Partial balance sheet information as of June 30, 20X2, follows: The f
> On January 2, 20X2, Hobbes Company files a petition for relief under Chapter 11 of the Bankruptcy Code. Hobbes had disastrous operating performance during the recent recession and needs time to reestablish profitable operations. The trial balance on Janu
> The following is a list of selected account balances in the unrestricted operating fund for Pleasant School: Required: Prepare a statement of activities for Pleasant School’s unrestricted operating fund for the year ended June 30, 2
> (Note: The following information is for questions 8 through 10.) United Together, a labor union, had the following receipts and expenses for the year ended December 31, 20X2: The union’s constitution provides that 10 percent of the
> Hardluck Inc. is insolvent. Its liabilities exceed its assets by $13 million. Blank, its president, and other family members own Hardluck. Blank, whose assets are estimated at less than $1 million, guaranteed the corporation’s loans. A consortium of bank
> (Note: The following information is for questions 8 through 10.) United Together, a labor union, had the following receipts and expenses for the year ended December 31, 20X2: The union’s constitution provides that 10 percent of the
> (Note: The following information is for questions 8 through 10.) United Together, a labor union, had the following receipts and expenses for the year ended December 31, 20X2: The union’s constitution provides that 10 percent of the
> In 20X3, Burr Foundation’s board of trustees designated $100,000 from its current funds for college scholarships. Also in 20X3, the foundation received a bequest of $200,000 from the estate of a benefactor who specified that it be used for hiring teacher
> Trees Forever, a community foundation, incurred $5,000 in expenses during 20X3 putting on its annual fund-raising talent show. In its statement of activities, Trees Forever should report the $5,000 as a. A contra asset account. b. A contra re
> The following expenditures were among those a not-for-profit botanical society incurred during 20X4: What amount should be classified as fund-raising costs in the society’s activity statement? a. $0 b. $5,000 c. $35,00
> In July 20X2, Ross donated $200,000 cash to a church with the stipulation that the revenue generated from this gift be paid to him during his lifetime. The conditions of this donation are that after Ross dies, the church may use the principal for any pur
> Roberts Foundation received a nonexpendable endowment of $500,000 in 20X3 from Multi Enterprise and invested it in publicly traded securities. Multi did not specify how gains and losses from dispositions of endowment assets were to be treated. No restric
> In 20X1, a not-for-profit trade association enrolled five new member companies, each of which was obligated to pay nonrefundable initiation fees of $1,000. The association received these fees in 20X1. Three of the new members paid the initiation fees in
> On January 2, 20X2, a not-for-profit botanical society received a gift of an exhaustible fixed asset with an estimated useful life of 10 years and no salvage value. The donor’s cost of this asset was $20,000, and its fair market value at the date of the
> Tower Inc. advises you that it is facing bankruptcy proceedings. As the company’s CPA, you are aware of its condition. Tower’s balance sheet on December 31, 20X1, and supplementary data follow: Additional Information
> A client has joined other creditors of Jet Company in a composition agreement seeking to avoid a bankruptcy proceeding against Jet. Which statement describes the composition agreement? a. It provides for the appointment of a receiver to take over a
> Penn Inc.’s assets have the carrying values and estimated fair values as follows: Penn’s debts follow: Required: a. Prepare a schedule to calculate the net estimated amount available for general unsecured creditor
> Atwater Health Services, a voluntary health and welfare organization, has provided support for families with low income in the town of Atwater for approximately 20 years. In 20X6, it conducted a major funding campaign to help replace facilities that are
> The plan of reorganizing for Taylor Companies, Inc., was approved by the court, stockholders, and creditors on December 31, 20X1. The plan calls for a general restructuring of all of Taylor’s debt. The company’s liabil
> The following are the 20X2 transactions of the Midwest Heart Association, which has the following funds and fund balances on January 1, 20X2: 1. Had Unrestricted pledges totaling $700,000, of which $150,000 is for 20X3 and uncollectible pledges esti
> A trustee has been appointed for Pace Inc., which is being liquidated under Chapter 7 of the Bankruptcy Code. The following occurred after the assets were transferred to the trustee: 1. Sales on account by the trustee were $75,000. Cost of goods sold w
> WorldCom Inc. was one of the largest companies to file for bankruptcy. This case requires the analysis of WorldCom’s December 31, 2002, 10-K filed with the Securities and Exchange Commission. The 10-K can be obtained through EDGAR (w ww.sec.gov) or some
> Your client is insolvent under the federal bankruptcy law. Under the circumstances a. So long as the client can meet current debts or claims by its most aggressive creditors, a bankruptcy proceeding is not possible. b. Your CPA firm need not d
> Narco is in serious financial difficulty and is unable to meet current unsecured obligations of $30,000 to some 14 creditors who are demanding immediate payment. Narco owes Johnson $5,000, and Johnson has decided to file an involuntary petition against N
> The order of payments for unsecured priority claims in a Chapter 7 bankruptcy case is such that a. Tax claims of governmental units are paid before claims for administrative expenses incurred by the trustee. b. Tax claims of governmental units
> The highest priority for payment of unsecured claims in a bankruptcy proceeding is a. Administrative expenses of the bankruptcy. b. Unpaid federal income taxes. c. Wages of each employee up to $10,000 earned within 180 days before the p
> The creditors of Lost Hope Company have had several meetings with the company’s management to discuss its financial difficulties. Lost Hope currently has a significant deficit in retained earnings and has defaulted on several of its debt issues. The opti
> Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic calculator that the company is developing cannot exceed $15. Shi
> Refer to the financial statements for Castile Products, Inc., in Exercise 15–8. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share during the year. Also assume that the company’s common stoc
> Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. Th
> Refer to the data in Exercise 1 for Weller Corporation. Data given in Exercise 1: Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common st
