Case 10
Issue:
If a company files bankruptcy do they have to pay previous debts?
Facts:
The company is filing chapter 11 and their total liabilities exceed their total assets.
Rule: 852 10 05-3
An entity enters reorganization under Chapter 11 by filing a petition with the Bankruptcy Court, an adjunct of the United States District Courts. The filing of the petition starts the reorganization proceeding. The goal of the proceeding is to maximize recovery by creditors and shareholders by preserving it as a viable entity with a going concern value. For that purpose, the entity prepares a plan of reorganization intended to be confirmed by the court. The plan provides for treatment of all the assets and liabilities of the debtor, which might result in forgiveness of indebtedness. For the plan to be confirmed and the reorganization proceedings thereby concluded, the consideration to be received by parties in interest under the plan must exceed the consideration they would otherwise receive on liquidation of the entity under Chapter 7 of the Bankruptcy Code. The court may confirm a plan even if some classes of creditors or some of the stockholders have not accepted it, provided that it meets standards of fairness required by Chapter 11 to the dissenting class of creditors or the dissenting stockholders.
Analysis:
According to 852 10 05-3 FASB codification if an entity files for bankruptcy a plan of reorganization will might result in forgiveness of indebtedness. In order for the plan to be applied the consideration to be received by parties in interest under the plan must exceed the consideration they would otherwise receive on liquidation of the entity under Chapter 7 of the Bankruptcy Code.
Conclusion:
A company filing for Chapter 11 bankruptcy is forgiven previous debt only if the plan of reorganization is confirmed in court.
Article:
http://abcnews.go.com/Business/brands-publicly-struggling/story?id=22805144#
Article Summary:
In the article 7 Brands That Are Struggling by Susanna Kim it states that companies that were once well known are struggling financially or closing locations due to various reasons. Sbarro a fast food pizza chain is $140 million in debt to cut cost the company will close 150 of the 440 restaurants in North America. Staples will save $500 million in its cost cutting efforts by 225 of its stores. Quiznos may be filing for chapter 11 bankruptcy due to being $570 in debt. The franchises biggest competitor, Subway has 41,391 locations as opposed to 2,100 locations.
Case 9

Chocolate Inc will be opening in 6 months and are looking to run advertisements a month before opening day. Chocolate Inc and Display Corporation created a contract where Display Corporation would start posting their advertisements in 5 months. The whole project will cost $10,000 to exhibit. How and when should Chocolate Inc recognize this expense?
Issue: Recognizing Advertising Expense
Rule: 720-35-25
(a) The costs of television airtime shall not be reported as advertising expense before the airtime is used. Once it is used, the costs shall be expensed, unless the airtime was used for