ExpertHard1 markMultiple Choice
CPA · Question 53 · Area II: Business Law
Which of the following acts by a debtor would constitute a 'preference' voidable by a bankruptcy trustee?
Which of the following acts by a debtor would constitute a 'preference' voidable by a bankruptcy trustee?
Answer options:
A.
Paying a fully secured creditor in full.
B.
Paying a $10,000 antecedent debt to a vendor 60 days before filing bankruptcy while insolvent.
C.
Buying inventory for cash in the ordinary course of business.
D.
Paying a utility bill on time.
How to approach this question
Preference Criteria: 1. Transfer to creditor. 2. Antecedent (old) debt. 3. Within 90 days. 4. While insolvent. 5. Creditor gets more than they would in liquidation.
Full Answer
B.Paying a $10,000 antecedent debt to a vendor 60 days before filing bankruptcy while insolvent.✓ Correct
B
A preferential transfer is a transfer of the debtor's property to a creditor for an antecedent debt, made while the debtor was insolvent, within 90 days of filing, that enables the creditor to receive more than they would have under Chapter 7. Paying an unsecured vendor for an old debt fits this.
Common mistakes
Thinking paying a secured creditor is a preference (it's not, because they are secured).
Practice the full CPA REG Practice Exam 3
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is preparing an original tax return for a client who is claiming a refund based on a positi...HardQ02A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership...HardQ03A tax return preparer willfully attempts to understate the tax liability on a client's return by ...HardQ04Which of the following scenarios would most likely result in the assessment of a penalty for fail...HardQ05Regarding the disciplinary authority of State Boards of Accountancy, which of the following state...Hard