Multiple Choice
Which of the following is considered a flexible expense?
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1. Introduction to Accounting
Types of Accounting
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Which of the following lists the correct order of priority for payment of claims during a corporate liquidation?
A
Secured creditors, unsecured creditors, preferred shareholders, common shareholders
B
Unsecured creditors, secured creditors, preferred shareholders, common shareholders
C
Common shareholders, preferred shareholders, unsecured creditors, secured creditors
D
Preferred shareholders, secured creditors, unsecured creditors, common shareholders
Verified step by step guidance1
Understand the concept of corporate liquidation: Corporate liquidation is the process of winding up a company's affairs, selling its assets, and distributing the proceeds to claimants in a specific order of priority.
Learn the hierarchy of claims during liquidation: The priority order is determined by legal and financial principles, ensuring that creditors are paid before shareholders.
Identify the first priority: Secured creditors are paid first because their claims are backed by collateral, giving them a higher level of security in repayment.
Determine the second priority: Unsecured creditors are paid next, as they do not have collateral backing their claims but are still considered before shareholders.
Understand the shareholder hierarchy: Preferred shareholders are paid before common shareholders because they have preferential rights to dividends and liquidation proceeds.
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