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Flashcards in Fiduciary Accounting Deck (13)

Define Fiduciary.

In the accounting context, it refers to the reporting done in cases of estates and trusts and insolvency or bankruptcy situation


What is the purpose of accounting for estates and trusts?

the primary purpose of reporting to a court the accountability of the fiduciary or trustee.


What is the responsibility of the fiduciary?

The responsibility of the fiduciary is increased by asset in flows to the fiduciary and decreased by asset outflows from the fiduciary


What are the important distinctions in estate and trust accounting?

principal and income


What is the statement prepared periodically to report on the responsibility of the fiduciary?

Charge and Discharge Statement


Define insolvency.

term used to describe a situation whereby an enterprise is incapable of paying currently maturing debt


Define bankruptcy

a legal concept wherein the aggregate value of an enterprise's assets is not sufficient to pay its debts


What is a Statement of Affairs (S of A)?

A report prepared when an enterprise is exhibiting signs of financial difficulty and parties with a financial interest in the enterprise are attempting to make decisions on the appropriate course of action to take (when imminent; that is, a plan for liquidation has been written up and it very likely to be implemented)


What is the concept of the S of A?

It is the measure assets at estimated realizable values and to show how the amounts expected to be generated from liquidation would be distributed to creditors and stockholders. Essentially, it is a balance sheet based on net realizable values instead of historical values


What is the Statement of Net Assets in Liquidation?

it is the new statement to take the place of the Statement of Affairs


Name 5 points of the statement of affairs or net assets in liquidation

1. the valuation adjustment represents the amount needed to adjust assets to reflect the current fair value as opposed to the carrying value
2. Fully secured claims are matched with assets against which claims are held; any excess expected to be available is allocated to unsecured claims
3. Partially secured claims are matched with assets against which claims are held; excess payables become part of the unsecured claims
4. Partially unsecured claims have legal priority over others (ex - admin fees, wages, taxes)
5. Residual amounts available for unsecured creditors are compared with unsecured claims to determine the status of unsecured creditors and stockholders.


What happens after an enterprise declares bankruptcy?

A receiver or trustee (fiduciary) is appointed, periodic reports on the activities of the fiduciary are prepared.


Name 4 points of the statement of realization and liquidation

1. Assets to be realized and assets acquired constitute the total assets available to the trustee. Assets realized are the assets converted to cash during the period. Assets not realized are those that have not been converted at the end of the period
2. Liabilities to be liquidated are liabilities to be paid from available assets at the beginning of the period and liabilities added are those that were incurred during the period.
3. Revenues and expenses represent a continuation of the income-producing activities of the enterprise during bankruptcy
4. Cash is omitted from the statement of realization and liquidation since the statement is prepared on the basis of realization of cash. Cash itself has already been realized. A detailed account of the cash flow activities during the period would be submitted to the court