Read several of the following articles as well as any other published pieces that describe the work of the accountant in bankruptcy cases: “Restructuring for a Positive Return,” CMA Management, December 2005/January 2006. “Alternatives to Bankruptcy Liquidation,” Agency Sales, February 2005. “The Use of Crystal Balls in Financial Reporting: The Case Against Three Recent FASB Developments,” Internal Auditing, March/April 2015. “Fresh-start Reporting: An Opportunity for Debtor Companies Emerging from Bankruptcy,” American Bankruptcy Journal, July/August 2009. “Statements of Financial Affairs and Schedules as a Corporate X-Ray,” American Bankruptcy Institute Journal, March 2010. “Predicting the Financial Failure of Retail Companies in the United States,” Journal of Business & Economics Research, August 2013. “Fresh-Start Accounting Becomes Part of the Daily Financial Intake,” American Bankruptcy Institute Journal, February 2010. “Assisting Troubled Business Clients: A Midsize Dilemma for CPAs,” Journal of Accountancy, March 2008. “Stanford Business School Research: Financial Statements Are Still Valuable Tools for Predicting Bankruptcy,” Business Wire, May 12, 2006. Required Write a report describing the services that an accountant can perform before and during a corporate bankruptcy. Include activities to be carried out prior to filing a petition and thereafter.
> Using the CEV option pricing model, set β = 1and generate option prices for strikes from 60 to 140, in increments of 5, for times to maturity of 0.25, 0.5, 1.0, and 2.0. Plot the resulting implied volatilities. (This should reproduce Figure 2
> Suppose that S = $100, σ = 30%, r = 6%, t = 1, and δ = 0. XYZ writes a European put option on one share with strike price K = $90. a. Construct a two-period binomial tree for the stock and price the put. Compute the replicating portfolio at each node. b.
> XYZ wants to hedge against depreciations of the euro and is also concerned about the price of oil, which is a significant component of XYZ’s costs. However, there is a positive correlation between the euro and the price of oil: The euro appreciates when
> You have purchased a 40-strike call with 91 days to expiration. You wish to delta-hedge, but you are also concerned about changes in volatility; thus, you want to vega-hedge your position as well. a. Compute and graph the 1-day holding period profit if y
> Use Itˆo’s Lemma to evaluate d(√S). For the following four problems, use Itˆo’s Lemma to determine the process followed by the specified equation, assuming that S(t) follows (a)
> Construct an asymmetric butterfly using the 950-, 1020-, and 1050-strike options. How many of each option do you hold? Draw a profit diagram for the position.
> Suppose that the exchange rate is 1 dollar for 120 yen. The dollar interest rate is 5% (continuously compounded) and the yen rate is 1% (continuously compounded). Consider an at-the-money American dollar call that is yen-denominated (i.e., the call permi
> Consider the June 165, 170, and 175 call option prices in Table 9.1. a. Does convexity hold if you buy a butterfly spread, buying at the ask price and selling at the bid? b. Does convexity hold if you sell a butterfly spread, buying at the ask price and
> XYZ Corp. compensates executives with 10-year European call options, granted at the money. If there is a significant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. The maturity of the
> Consider a perpetual put option with S = $50, K = $60, r = 0.06, σ = 0.40, and δ = 0.03. a. What is the price of the option and at what stock price should it be exercised? b. Suppose δ = 0.04 with all other inputs the same. What happens to the price and
> Verify that equation (23.14) (for both cases K >H andK e-r(T-1) (프 N(-d4) H > K (23.14) e-r(T-1) N(-dz) – N(-d6) +(4)1 H < K N(-dg)
> In the previous problem we saw that a ratio spread can have zero initial premium. Can a bull spread or bear spread have zero initial premium? A butterfly spread? Why or why not? Previous Problem Compute profit diagrams for the following ratio spreads: a
> We now use Monte Carlo to simulate the behavior of the martingale Pt/St, with St as numeraire. Let x0 = P0(0, T )/S0. Simulate the process xt+h= (1+ σ√hZt+h)xt Let h be approximately 1 day. a. Evaluate b. Compute the mean and standard deviation of the
> Use the answers to the previous two problems to verify that the Black-Scholes formula, equation (12.1), satisfies the Black-Scholes equation. Verify that the boundary condition V [S(T ), T ]= max[0, S(T ) − K] is satisfied. C(S, K,
> Verify that e−r(T−t)N(d2) satisfies the Black-Scholes equation.
> Suppose S0 = 100, r = 0.06, σS= 0.4 and δ = 0. Use Monte Carlo to compute prices for claims that pay the following: a. b. c.
> The stock price of XYZ is $100. One million shares of XYZ (a negligible fraction of the shares outstanding) are buried on a tiny, otherwise worthless plot of land in a vault that would cost $50 million to excavate. If XYZ pays a dividend, you will have t
> An option has a gold futures contract as the underlying asset. The current 1-year gold futures price is $300/oz, the strike price is $290, the risk-free rate is 6%, volatility is 10%, and time to expiration is 1 year. Suppose n = 1. What is the price of
> Assume that the volatility of the S&P index is 30% and consider a bond with the payoff S2 + λ × [max (0, S2 − S0) – max (0, S2 − K)]. a. If λ = 1 and K = $1500, what is the price of the bond? b. Suppose K = $1500. For what λ will the bond sell at par? c.
> a. Suppose that you want to borrow a widget beginning in December of Year 0 and ending in March of Year 1. What payment will be required to make the transaction fair to both parties? b. Suppose that you want to borrow a widget beginning in December of Ye
> The spot price of a widget is $70.00 per unit. Forward prices for 3, 6, 9, and 12 months are $70.70, $71.41, $72.13, and $72.86. Assuming a 5% continuously compounded annual risk-free rate, what are the annualized lease rates for each maturity? Is this a
> What is a third-party payor, and how does the presence of such payors affect the financial accounting of a health care entity?
> Helping Hand NFP is a private not-for-profit entity that has equipment with a net book value of $1.1 million but a fair value of $1.4 million. Fancy Fingers is a private not-for-profit entity that has equipment with a net book value of $1 million and a f
> Sunshine NFP, a not-for-profit entity, gains control over Dancing Bears NFP, another not-for-profit. The acquisition value of Dancing Bears is $2.3 million, but all of its identifiable assets and liabilities have a total fair value of only $2.1 million.
> What are the two methods that can be used to account for the combination of two or more private not-for-profit entities into a single entity?
> When should membership dues be considered revenue rather than contributions?
> What is the difference between an unconditional promise to give and an intention to give?
> A private not-for-profit entity receives numerous pledges of financial support to be conveyed at various times over the next few years. Under what condition should these pledges be recognized as receivables and contributed support? At what amount should
> A private not-for-profit entity sends a direct mail solicitation for monetary donations. Other information is included with the mailing. Under what conditions can the organization report part of the cost of this mailing as a program service cost rather t
> Prairie Corporation is a primary beneficiary for Vintage Company, a variable interest entity. When Prairie obtained financial control over Vintage, any excess fair value over Prairie’s book value was attributed solely to goodwill. Prairie owns 15 percent
> Under what conditions does a not-for-profit entity record donated services?
> What is a debtor in possession? a. The holder of a note receivable issued by an insolvent company prior to the granting of an order for relief. b. A fully secured creditor. c. The ownership of an insolvent company that continues to control the organizati
> Through the payment of $10,468,000 in cash, Drexel Company acquires voting control over Young Company. This price is paid for 60 percent of the subsidiary’s 100,000 outstanding common shares ($40 par value) as well as all 10,000 shares of 8 percent, cumu
> Arcola, Inc., acquires all 40,000 shares of Tuscola Company for $725,000. A year later, when Arcola’s equity adjusted balance in its investment in Tuscola equals $800,000, Tuscola issues an additional 10,000 shares to outside investors for $25 per share.
> A donor gives a gift to a charity that is to be conveyed to a separate beneficiary. What is the method of reporting for each party if the charity receives variance power enabling it to change the identity of the beneficiary?
> A donor gives a gift to a charity that is to be conveyed to a separate beneficiary. What is the method of reporting for each party if the donor retains the right to revoke or redirect use of the gift?
> A donor gives a gift to a charity that must be conveyed to a separate beneficiary. What is the normal method of reporting for each party?
> Why is a statement of functional expenses required of a voluntary health and welfare entity?
> What ratio is frequently used to assess the efficiency of not-for-profit entities?
> In reporting the functional expenses of a not-for-profit entity, what are the two general types of expenses?
> What are permanently restricted net assets?
> Which of the following is not correct with regard to the Public Company Accounting Oversight Board? a. The board can expel a registered auditing firm without SEC approval. b. All registered auditing firms must be inspected at least every three years. c.
> The parent company acquires all of a subsidiary’s common stock but only 70 percent of its preferred shares. This preferred stock pays a 7 percent annual cumulative dividend. No dividends are in arrears at the current time. How is the noncontrolling inter
> What are temporarily restricted net assets?
> What financial statements are required for private not-for-profit colleges and universities?
> Why is it important for U.S. accountants to be familiar with IFRS?
> What information do financial statement users want to know about a not-for-profit entity?
> Bensman Corporation is computing EPS. One of its subsidiaries has stock warrants outstanding. How do these convertible items affect Bensman’s EPS computation? a. No effect is created because the stock warrants were for the subsidiary company’s shares. b.
> Which organization is responsible for issuing reporting standards for private not-for-profit colleges and universities?
> Go to www.epiqbankruptcysolutions.com or www.kccllc.net and select one of the current active bankruptcy cases. If available, go to an online business publication database such as Factiva or ABI-Inform. Search for articles that discuss the issues and prob
> Go to www.epiqbankruptcysolutions.com or www.kccllc.net and select one of the current active bankruptcy cases. Required Look through all of the information that is available for the case that you selected. Assume that your boss needs information about t
> Go the following story about the bankruptcy filing of the Great Atlantic & Pacific Tea Company (better known as A & P): http://www.usatoday.com/story/money/2015/07/20/p-grocery-chain-filesbankruptcy-again/30404517/ Then go to the Securities and Exchange
> On a statement of financial affairs, how are liabilities classified? a. Current and noncurrent. b. Secured and unsecured. c. Monetary and nonmonetary. d. Historic and futuristic.
> Which of the following is a requirement of the Sarbanes–Oxley Act of 2002? a. Registration of all auditing firms with the Public Company Accounting Oversight Board. b. Annual inspection of all auditing firms registered with the Public Company Accounting
> An investment analyst has been studying the long-term prospects of Six Flags Entertainment Corporation and has asked for assistance. Go to www.sixflags.com and click on “Investors” at the top of the page. Then, click on “Annual Reports” on the left side
> Aberdeen Corporation is considering the possibility of filing a voluntary petition of bankruptcy because of a particularly high level of debt. The company is publicly traded on a national stock exchange and, therefore, company officials are concerned abo
> Holmes Corporation has filed a voluntary petition with the bankruptcy court in hopes of reorganizing. A statement of financial affairs has been prepared for the company showing these debts: Liabilities with priority: Salaries payable . . . . . . . . . .
> How are IFRS currently used in the United States?
> Use the trial balance presented for Lynch, Inc., in problem (51). Assume that the company will be liquidated and the following transactions will occur: ∙ Accounts receivable of $18,000 are collected with remainder written off. â&#
> Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The entire in
> Net cash flows from financing activities were a. $(25,000) b. $(37,000) c. $(38,000) d. $(42,000) Comparative consolidated balance sheet data for Iverson, Inc., and its 80 percent–owned subsidiary Oakley Co. follow: Additional Inform
> Oregon Corporation has filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Reform Act. Its creditors are considering an attempt to force liquidation. The company currently holds cash of $6,000 and accounts receivable of $25,000. I
> Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2017, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act: BECKET CORPORATION Balance She
> Which of the following is the minimum limitation necessary for filing an involuntary bankruptcy petition in connection with a company that has 57 unsecured creditors? a. The signature of 12 creditors to whom the debtor owes at least $14,775 in unsecured
> The following balance sheet has been produced for Litz Corporation as of August 8, 2017, the date on which the company is to begin selling assets as part of a corporate liquidation: LITZ CORPORATION Balance Sheet August 8, 2017 Assets Cash . . . . . . .
> The Securities Exchange Act of 1934 a. Regulates the public trading of previously issued securities through brokers and exchanges. b. Prohibits blue sky laws. c. Regulates the initial offering of securities by a company. d. Requires the registration of i
> Anteium Company owes $80,000 on a note payable that is currently due. The note is held by a local bank and is secured by a mortgage lien attached to three acres of land worth $48,000. The land originally cost Anteium $31,000 when acquired several years a
> Creditors of Jones Corporation are considering petitioning the courts to force the company into Chapter 7 bankruptcy. The following information has been determined. Administrative expenses in connection with the liquidation are estimated to be $22,000. I
> The following balance sheet has been prepared by the accountant for Limestone Company as of June 3, 2017, the date on which the company is to file a voluntary petition of bankruptcy: LIMESTONE COMPANY Balance Sheet June 3, 2017 Assets Cash . . . . . . .
> Ambrose Corporation reports the following information: In liquidation, what amount of cash should each class of liabilities expect to collect? Book Value Liquldation Value $220,000 111,000 $245,000 Assets pledged with fully secured creditors Assets
> Has the IASB-FASB convergence process been successful?
> Smith Corporation has gone through bankruptcy and is ready to emerge as a reorganized entity on December 31, 2017. On this date, the company has the following assets (fair value is based on discounting the anticipated future cash flows): The company ha
> Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2017. The company currently has 30,000 shares of common stock outstanding with a $240,000 par value. As part of the reorga
> Jaez Corporation is in the process of going through a reorganization. As of December 31, 2017, the company’s accountant has determined the following information although the company is still several months away from emerging from the ba
> Which of the following is not a liability that has priority in a liquidation? a. Administrative expenses incurred during the liquidation. b. Salary payable of $1,250 per person owed to 26 employees. c. Payroll taxes due to the federal government. d. Adve
> Net cash flows from operating activities were a. $12,000 b. $20,000 c. $24,000 d. $25,000 Comparative consolidated balance sheet data for Iverson, Inc., and its 80 percent–owned subsidiary Oakley Co. follow: Additional Information fo
> Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: The company has a reorganization value of $600,000. a. Describe the rules to determine whether to apply fresh start accounting to Kansas City. b. If fresh start acco
> What is the difference between Regulation S–K and Regulation S–X? a. Regulation S–K establishes reporting requirements for companies in their initial issuance of securities whereas Regulation S–X is directed toward the subsequent issuance of securities.
> Addison Corporation is currently going through a Chapter 11 bankruptcy. The company has the following account balances for the current year. Prepare an income statement for this organization. The effective tax rate is 20 percent (realization of any tax b
> The Larisa Company is exiting bankruptcy reorganization with the following accounts: The company’s assets have a $760,000 reorganization value. As part of the reorganization, the company’s owners transferred 80 perce
> An order for relief creates an automatic stay that a. Prohibits creditors from taking action to collect from an insolvent company without court approval. b. Calls for the immediate distribution of free assets to unsecured creditors. c. Can be entered onl
> An involuntary bankruptcy petition must be filed by a. The insolvent company’s attorney. b. The holders of the insolvent company’s debenture bonds. c. Unsecured creditors with total debts of at least $15,775. d. The company’s management.
> Pumpkin Company is going through bankruptcy reorganization. It has a $200,000 note payable incurred prior to the order for relief. The company believes that the note will be settled for $60,000 in cash. It is also possible that the creditor will instead
> The Jackston Company is to be liquidated as a result of bankruptcy. Until the liquidation occurs, on what basis are its assets reported? a. Present value calculated using an appropriate effective rate. b. Net realizable value. c. Historical cost. d. Book
> In a bankruptcy, which of the following statements is true? a. An order for relief results only from a voluntary petition. b. Creditors entering an involuntary petition must have debts totaling at least $21,625. c. Secured notes payable are considered li
> A company’s management has uncovered events that indicate that substantial doubt exists that the company can pay its debts as they come due over the following year. Management studies the plans created to address this risk. How can the company avoid disc
> A company’s management has uncovered events that indicate that substantial doubt exists that the company can pay its debts as they come due over the following year. What should management do next? a. Management should disclose that substantial doubt exis
> What are the objectives of the bankruptcy laws in the United States? a. Provide relief for the court system and ensure that all debtors are treated the same. b. Distribute assets fairly and discharge honest debtors from their obligations. c. Protect the
> A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true? a. Whether the b
> How do noncontrolling interest balances affect the consolidated statement of cash flows?
> How is goodwill computed if fresh start accounting is applied to a reorganized company?
> What is the difference between a Form 10–K and a Form 10–Q?
> What are the steps that a company must follow in preparing its initial set of IFRS financial statements upon the company’s first-time adoption of IFRS?
> A company going through a Chapter 7 bankruptcy has the following account balances: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 Receivables (30% collectible) .
> When fresh start accounting is utilized, how are a company’s assets and its liabilities reported?
> Under what conditions does a company that is emerging from a bankruptcy reorganization use fresh start accounting?
> What is meant by the term fresh start accounting?
> What accounting is made of the professional fees incurred during a reorganization?
> During reorganization, how should a company’s income statement be structured?
> While a company goes through reorganization, how should its assets and liabilities be reported?
