1. Liquidations in bankruptcy Aa Aa When a business is worth more if its assets

Question

1. Liquidations in bankruptcy Aa Aa When a business is worth more if its assets are sold than if it continues to operate, then the business is liquidated, and the proceeds from the sale are used to satisfy any outstanding debt. Liquidation occurs when businesses file for bankruptcy under Chapter 7 of the Federal Bankruptcy Reform Act. This act provides for an equitable distribution of the debtor's assets among the creditors. The distribution of assets i:s governed by a certain priority of claims. Which of the following claimants has the highest priority according to Chapter 7? O State taxes due Unsecured claims for customer deposits OWages due before three months of filing O Legal and administrative fees to operate the bankrupt firm Fuzzy Badger Transport has been in financial distress for the past three years. The company's reorganization plans were rejected, and the bankruptcy court is forcing Fuzzy Badger Transport to liquidate its assets and settle creditor claims

Explanation / Answer

1. Most priority debt as per chapter 7 is wages, salaries, and commissions owed by an employer up to $12,850 per person earned within 180 days of your bankruptcy filing. So, Answer is option 3.

2. Amount to be received by common stockholders

Proceeds 2500 K - 375 K accounts payable-750 K notes payable, 750 K Debentures = $ 625 K

3. Reorganization

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