If a Company Borrows Funds and Subsequently Ceases Operations

question 7

Multiple Choice

If a company borrows funds and subsequently ceases operations,

• A)shareholders have immediate claim on the assets of the corporation.
• B)shareholders have no claim on the assets of the corporation.
• C)shareholders have to pay all debt first before claiming the assets of the corporation.
• D)shareholders have only a residual claim on the assets of the corporation.

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Definitions:

Liquidation Account

An account created to collect transactions and balances during the process of liquidating or winding up a company.

Liquidator's Distribution

The process of distributing assets held by a company under liquidation to its creditors and shareholders.

Shareholders' Distribution

The allocation of earnings declared by a corporation to its shareholders, usually in the form of dividends.

Liquidation Account Purpose

The objective of tracking and managing all financial transactions during a company's liquidation process to ensure fair distribution of assets to creditors and shareholders.