Hi - Could someone explain the reasoning for the answer to the following MC question? The selected choice is the right answer according to Bisk. Thanks for your help!

On February 28, Year 4, Master, Inc. had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Year 4, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Year 4, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme.

Master's payment to Acme could

< id=AID117715 = name=QCID2972 ANSWER="0" POINTS="0" LABEL="A" EXPLANATION="Since Acme was oversecured, the payment would not qualify as a preferential transfer.">	Be set aside as a preferential transfer because the fair market value of the collateral was greater than the installment note balance
< id=AID117716 = name=QCID2972 ANSWER="0" POINTS="0" LABEL="B" EXPLANATION="Since Acme was oversecured, the payment would not qualify as a preferential transfer.">	Be set aside as a preferential transfer unless Acme showed that Master was solvent on January 15, Year 4
< id=AID117717 = name=QCID2972 ANSWER="1" POINTS="1" LABEL="C" EXPLANATION="The bankruptcy laws grant the trustee avoiding powers to set aside certain conveyances, including preferential transfers. A preferential transfer is a property transfer: (1)&nbsp;of $5,475 or more; (2) for or on account of an antecedent debt owed by the debtor; (3)&nbsp;to or for the benefit of a creditor; (4) made while the debtor was insolvent; (5) on or within 90 days before the date of bankruptcy filing; and (6) that enables the creditor to receive more than it would receive as a distributive share under a Chapter 7 liquidation. All six tests must be met to establish a preferential transfer. The sixth test in this case is not met because secured creditors have priority over other creditors, and Acme was oversecured at the time of the monthly installment payment.">	Not be set aside as a preferential transfer because Acme was oversecured
< id=AID117718 = name=QCID2972 ANSWER="0" POINTS="0" LABEL="D" EXPLANATION="Solvency is not relevant in this case because, since Acme was oversecured, the installment payment would not qualify as a preferential transfer.">	Not be set aside as a preferential transfer if Acme showed that Master was solvent on March 15, Year 4

In case of bankruptcy, secured creditors are always first in payment after payments for spouse and children support obligation. Here Acme was paid when the FMV  of the security was more than the debt owed to him. Had master defaulted on the payment the creditor would have realised the amount due to him fully from the security interest he  had in the equipment. Therefore the creditor did not receive more than what he would have got under the distributive share. Hence the payment is not preferential.

Had the Secured creditor not been paid earlier and paid in the liquidation distribution when the realised amount from  equipment was less than the amount owed, the payment in excess of the realised amount would have been set aside as a preferential payment.

I hope i am clear.Please correct me if i am wrong.

Sangi,

Thanks for your help...that cleared my question.

Ana