During the 2008 and 2009 global economic crisis, several large corporations in both Canada and the United States could not meet their financial commitments and fi led for bankruptcy protection. Bankruptcy protection gives companies time to reorganize their operations and financial commitments and to develop a comprehensive restructuring plan, which will allow them to continue to operate. While bankruptcy protection is in place, creditors are prevented from taking any action against the company.
Instructions
(a) What is the potential effect on a company's financial statements if the company files for bankruptcy?
(b) Should companies under bankruptcy protection prepare their statements under the going concern assumption? Explain.
Taking It Further
Describe the dilemma that a company's management faces in disclosing that a company
may not be able to continue as a going concern.