actg441 midterm2

Difference between voluntary and involuntary bankruptcy

Voluntary bankruptcy is initiated by the debtor

Involuntary bankruptcy is when creditors force the debtor into bankruptcy court

Creditor Hierarchy

Fully secured

Partially secured

Unsecured creditors with priority

General unsecured

Equity holders

What is the goal of liquidation?

Discontinue operations and distribute assets to creditors

When is the liquidation basis of accounting applied?

Once liquidation becomes imminent (approved by a court)

What statements are required for Chapter 7?

Statement of Net Assets in Liquidation

Statement of Changes in Net Assets in Liquidation

How are assets reported in a Chapter 7?

Expected realizable values, not fair value

What is the goal of reorganization?

Restructure and continue operations

Typically remains under the debtor’s control, unless fraud/mismanagement is evident

What are the key features of NFPs?

Receive donations without expectation of return

Have operational missions, not profit motives

Lack ownership interests

What are the required financial statements for NFPs?

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Explain Statement of Financial Position

Assets = Liabilities + Net Assets

How are net assets classified?

Without donor restrictions

With donor restrictions

Explain Statement of Activities

Reports revenues, expenses, and changes in net assets

Tracks changes separately for each net asset category

How is the Statement of Activities reported?

Using the accrual basis

Explain Statement of Cash Flows

Uses same three categories as for-profits

How is the Statement of Cash Flows reported?

Direct method is allowed without reconciliation to indirect method

Explain Statement of Functional Expenses

Breaks down expenses by program and supporting functions

What are the two categories of contributions?

Conditional: recognized only when conditions are met

Unconditional: recognized immediately

Explain the accounting of mergers

Carryover method (combine balances)

Explain the accounting of acquisitions

Fair value method

Explain healthcare NFPs

Must use revenue recognition standards under ASC 606 for exchange transactions (services rendered for fees)