Video: Real Life Examples of Bankruptcies

In this lesson, grab a front-row seat as Nick Palazzolo, CPA, dives into the tumultuous world of corporate bankruptcies with gripping real-life case studies. He kicks off the discussion with the notorious Chapter 7 bankruptcy of Enron, intricately detailing how the energy giant manipulated its accounting to mask debt and fabricate earnings, leading to its inevitable demise. The conversation then shifts to the Chapter 11 tale of Toys "R" Us, unpacking the iconic toy retailer's battle to stay afloat amidst e-commerce pressures and its brief resurgence before closing shop. Lastly, Nick sheds light on Chapter 13 bankruptcy, typically employed by individuals, underscoring how homeowners utilize this provision to devise a repayment plan and safeguard their residences. This lesson doesn't just recount bankruptcy stories but uncovers the underlying financial machinations within these cautionary tales.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right, as promised, we've got some real life examples of bankruptcies. And what we are going to walk through here, we've got first off chapter seven. Well, Enron, as accountants, I'm sure you've heard of this wonderful example. That was an American Energy Commodities and Service company based in Houston, Texas. It was founded in 1985. And by the year 2000, it was one of the largest companies in the US with claimed revenues. Notice we say claim. They claim they had revenues of nearly $101 billion. Now, however, in 2001, it was revealed that much of its profits and revenue were the result of deals with special purpose entities, such as limited partnerships, which are controlled. So really just manipulating the accounting system, conducting transactions within itself with itself. Essentially, this allowed Enron to hide debt from its balance sheet, inflate profits and maintain a high stock price. This was done by means of an accounting loophole that allowed it to keep liabilities off the books, thus inflating earnings and deceiving shareholders. Now, that company does not exist anymore. And that is why chapter seven liquidated. You're done. Chapter 11 in 2017, Toys R Us filed for chapter of bankruptcy. I know all of our childhoods are weeping at the thought of that. The company had struggled to keep up with the rise of e-commerce and faced significant competition from other retailers. Now, under the bankruptcy, the company was able to restructure its debts and continue operating. If you weren't aware, it did make a little bit of a comeback. I can't say I was shopping too much at Toys R Us. However, despite its efforts, the company eventually had liquidate all of its stores and go out of business. So it came back for a while. It

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Bankruptcy, Debtors & Creditors, and Secured Transactions

Module: 3 Concepts, 46 Videos

Secured Transactions, Including the Rights, Duties and Liabilities of Debtors, Creditors and Guarantors Overview

2:55

Introduction to Secured Transactions

5:24

Debtors, Creditors, and Guarantors

3:10

Surety vs. Guarantor