Question

In 1988, Michael Malone, a professor of computer science and a specialist in digital technology, realized that it was only a short time before the computer would change the way people lived. Although he was 29 and quite happy with his $70,000 annual salary, he decided that this was an opportunity he just could not pass up. In 1985, he formed a new corporation, investing virtually all of his accumulated wealth, $200,000, in exchange for 51% of its stock. Three other individuals contributed additional cash for the remaining 49% of the stock. In the first ten years of operation, the corporation was immensely successful. In 1997, Mike retired from the university and turned all of his attention to the business. All went well. In fact, things went so well that, by 2012, Mike turned over the supervision of everyday operations to several trusted employees; he began spending more time at the golf course and less time at the office. He was completely content working 20 hours a week and drawing an annual salary of $200,000. That income combined with his pension from the University of $12,000 a year was more than enough to keep him happy. During 2014, however, the competition in the computer consulting business became fierce and the corporation had cash flow problems. As a result, Michael loaned the corporation $1,000,000 to keep it afloat. Unfortunately, the corporation was not able to survive and declared bankruptcy in 2016. How should Michael treat the worthless loan? Please include a brief conclusion on how the loan would be accounted for together with the code sections!

Answer 1

Bankruptcy can be declared under chapter and chapter 11.

According to the corporate bankruptcy when a company files bankruptcy it suspends all its operations and the business shuts down.

When this if filled a trustee is appointed and the assets are liquidated and he amount is utilized to dispose of its liabilities

In the instant case the bankruptcy is as per the chapter 7 which is entire business shuts down

Secured creditors are paid off with an amount that is actually promised to pay.

Michael’s loan of amount $1,000,000 taken for the purpose of   the business can be recovered not full but some of which can be realized.

There is an opportunity to discharge several kinds of personal debt and protect from continued creditor action, such as collection attempts or repossession of the loan