Credit Relationshps

Question 1

What is a Surety?

Answer 1

One who provides a guarantee that a debt will be paid.

Question 2

What is a right of contribution?

Answer 2

When a co-surety of a debt can demand that the other co-surety participants reimburse him for paying more of his proportionate share of the debt.

Question 3

What is bankruptcy?

Answer 3

The legal status of a person who cannot repay debts owed to creditors. For the CPA Exam, it is a legal process in which the debtor is relieved of his or her debts, and the creditors are given an amount of satisfaction on their portion of the debts.

Question 4

What types of business structures can apply for bankruptcy?

Answer 4

Sole proprietorships, partnerships, corporations

Question 5

List the 3 types of bankruptcy that the CPA Exam covers

Answer 5

Chapter 7 Liquidation
Chapter 11 Business Reorganization
Chapter 13 Debt Adjustment Plan

Question 6

What is Chapter 7 Liquidation?

Answer 6

Purpose: to allow the debtor a discharge from his or her debts.

A trustee is appointed to take care of the administration of financial affairs for the bankrupt party, and to distribute assets to creditors.

Automatic stay immediately halts collection actions.
Voluntary or involuntary filing

Question 7

What is Chapter 11 Business Reorganization?

Answer 7

Goal: to provide the business owner (debtor) some options that allow the owner to restructure the business, so that existing assets can generate income to pay the debt.

A plan to repay creditors is put into place. No assets are liquidated so there is no trustee.
Automatic stay immediately halts collection actions.
Voluntary or involuntary filing

Question 8

What is Chapter 13 Debt Adjustment Plan?

Answer 8

There is a trustee, but no assets are liquidated. A 3-5 year repayment plan is set up to repay creditors.

Question 9

What kind of property qualify as bankruptcy estate property?

Answer 9

Real Property (real estate - homes and land)

Personal Property (Vehicles - or the items on which you pay personal property tax)

Income earned from real or personal property, insurance proceeds, inheritance, property from divorce received 180 days before filing.

Question 10

What kind of property is excluded from bankruptcy estate property?

Answer 10

Income earned after filing petition.

Items deemed necessary to live.

Question 11

List some reasons debts cannot be discharged under chapter 7

Objections to discharge

Answer 11

1. If debts were discharged within the last 8 years
2. If there was a fraudulent transfer of debt or property concealed from the trustee
3. If books or records were not kept on financial affairs

Question 12

List some debts that can’t be discharged under ch 7 bankruptcy

Answer 12

Taxes due - last 3 years
Alimony or child support
Debt incurred by fraud or illegal means (fines, court damages, restitution)

Question 13

What is reaffirmation?

Answer 13

Debts that the debtor intends to pay back

Question 14

List the priority of payments under ch 7

Answer 14

Secured creditor
Priority creditor
General creditors

Question 15

List some examples of priority creditors

Answer 15

Child and spousal support
Unpaid wages to employees
Employee benefit plan payments
Personal injury claims

Question 16

The law looks back a certain time period to prevent a debtor from shifting around assets before filing for bankruptcy. What is this period of time?

Answer 16

180 days

Question 17

What is a cram down exception?

Answer 17

In chapter 11 - When the bankruptcy court confirms a reorganization plan that a class of creditors has voted down.

Question 18

What is the priority of payments under ch 11?

Answer 18

Same as ch 7 -
Secured creditor
Priority creditor
General creditors

Question 19

What is an impaired claim?

Answer 19

A debt that won’t be repaid completely or one that will be repaid, but the repayment terms will be changed as a result of reorganization.

Question 20

What types of securities are exempt from registration with the SEC?

Answer 20

Intrastate Sales Securities
Commercial paper
Insurance policies
Securities issued by non-profit or religious organizations

Question 21

What is commercial paper?

Answer 21

A short-term debt instrument issued by a corporation to finance various company accounts.

Question 22

What is the Securities Act of 1934 for?

Answer 22

To protect investors and make sure that companies provide sufficient disclosure about their securities when these securities are trade between investors.

It oversees exchanges - like the NY stock exchange

Question 23

Do Exchanges have to register with the SEC?

Answer 23

Yes

Question 24

The SEC requires additional financial disclosure under the Securities Act of 1934. List the additional reports required:

Answer 24

10K and 10Q
Tender Offers
Proxy Solicitation
A Trade by an Insider

Question 25

What is a Tender Offer?

Answer 25

When someone wants to purchase 5% or more of the outstanding stock shares of a company.

Question 26

What is a proxy solicitation?

Answer 26

A request that a corporate shareholder authorize another to cast the shareholder’s vote at a corporate meeting. A ballot (accompanied by a proxy statement) can be a substitute shareholder.

Question 27

What is a Trade by an Insider?

Answer 27

A person who owns 10% or more of the voting stock of a company.

Question 28

Unless stated otherwise, all common stock is voting stock - True or False?

Answer 28

True