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Chapter 7 Guerrero PDF
Chapter 7 Guerrero PDF
Chapter 7
CHAPTER 7
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
7-1:
7-2:
c
Amount realized secured by inventory
Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
P 32,500
d
Amount realized secured by inventory
Unsecured claim (P88,000 x 75%)
P120,000
__66,000
P186,000
7-3:
d (P15,000,000 + P200,000)
7-4:
a
Realizable value:
Current assets
Land and building
Less mortgage payable
P 50,000
P240,000
_200,000
__40,000
Total
Less accounts payable
90,000
_160,000
P 70,000
7-5:
c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6:
a
Free assets:
Current assets
Buildings and equipment
Total
Liabilities with priority:
Administrative expenses
Salary payable
Income taxes
Total
P 33,000
_110,000
P143,000
P 20,000
6,000
__8,000
P 34,000
131
P109,000
P 30,000
83,000
__70,000
P183,000
c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 P70,000)
Total
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 P50,000)
Unsecured creditors
Total
P 90,000
__18,000
P108,000
P 80,000
__46,000
P126,000
P 42,000
P 84,000
P 80,000
_200,000
P280,000
P 50,000
__24,000
P 74,000
132
7-8:
Chapter 7
a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000)
P230,000
30,000
__70,000
P330,000
____60%
P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9:
a
Estate equity, beg. (P100,000 P85,000)
Loss on realization (P100,000 P75,000)
Unrecorded liabilities:
Interest expense
Administrative expense
Estate deficit
7-10:
P 15,000
( 25,000)
P
250
4,000
4,250)
P( 14,250)
c
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
P 31,000
(45,250)
P 14,250
7-11:
7-12:
7-13:
133
b
Assets pledged with fully secured creditors
Fully secured creditors
Free assets
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000
b
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
b
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
7-14:
7-15:
7-16:
7-17:
a
a
b
d
7-18:
d
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
55,000
_160,000
215,000
__35,000
P180,000
P 10,000
__20,000
P 30,000
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
P 8,160
9,500
7,000
3,600
5,650
___430
P 72,000
( 16,660)
P 64,340
_55,340
P 9,000
134
7-19:
Chapter 7
d
Accounts Receivable (39,350 - 16, 110)
Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
7-20:
7-21:
d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000)
Free Assets:
Cash
Accounts Receivable
Inventories
Equipment
Total
Less: Unsecured liabilities with priority (1,850 + 4,650)
Net Free Assets
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB
P 15,000
Notes Receivable
__12,500
Accounts Payable
52,500
Notes Payable
__51,250
Estimated recovery %
7-22:
d
Fully secured (Notes Payable)
Partially secured:
Notes Payable - PNB
Add (2,500 X 67%)
Unsecured Creditor with Priority
Unsecured Creditor without Priority (103,750 X 67%)
Total
P 23,240
600
42,750
950
__39,800
P112,740
P 5,000
P 2,700
16,110
45,100
__9,000
__72,910
77,910
___6,500
P 71,410
2,500
103,750 P106,250
67%
P 90,000
P12,500
__1,675
14,175
6,500
__69,513
P180,188
7-23:
7-24:
7-25:
7-26:
7-27:
7-28:
a
Unsecured creditors without priority
Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders equity
Net free assets
Liabilities with priority
Free assets
a
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
Total
Stockholders equity
Estimated deficiency
135
P1,102,500
551,250
55,125
606,375
441,000
165,375
937,125
122,500
P 1,059,625
78,750
(336,700)
(257,950)
( 43,750)
(301,700)
295,750
P( 5,950)
a
Notes payable (175,000 140,000)
Unsecured liabilities (420,000 52,500)
Total
Net free assets (157,500 + 210,000) P52,500
Estimated deficiency
P 35,000
367,500
402,500
315,000
87,500
a
Old receivable (net)
Marketable securities
Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
a
Old receivable
New receivable
Marketable securities
Sales of inventory
Total asset realized
a
Gain on sale of inventory (P75,000 60,000)
Loss on realization:
Marketable securities (12,000 10,500)
Trustees expenses
Depreciation
Net loss
21,000
47,000
10,500
75,000
P153,500
15,000
1,500
4,300
16,000
(21,800)
P( 6,800)
136
7-29:
Chapter 7
Correction of the problem: The book value of the Mortgage Payable should be P440,000.
1.
P 40,000
140,000
120,000
P300,000
160,000
P140,000
a
Net free assets / Unsecured creditors without priority
P140,000 / (P50,000 + P300,000) = 40%
3.
a
Unsecured liabilities with priority
Fully secured liabilities (Mortgage payable)
Partially secured liabilities (Note payable):
Secured by accounts receivable
Unsecured (P50,000 x 40%)
Unsecured liabilities without priority
Total estimated payment to creditors
7-30:
1.
P160,000
440,000
P150,000
20,000
170,000
120,000
P890,000
Debits:
Assets to be realized
Assets acquired
Liabilities liquidated
Liabilities not liquidated
Supplementary charges
Total
P 330,000
360,000
360,000
450,000
468,000
P1,968,000
Credits:
Assets realized
Assets not realized
Liabilities to be liquidated
Liabilities assumed
Supplementary credits
Net loss
P 420,000
150,000
540,000
180,000
P1,800,000
P 168,000
137
7-3-, continued:
2.
Capital stock
Retained earnings
Liabilities not liquidated
Total assets
Less assets not realized
Cash balance
7-31:
P300,000
120,000
450,000
P870,000
150,000
P720,000
1.
a
2.
a
3.
a
4.
d
Supporting computations:
Fully
Secured
P130,000
Liabilities
Accounts payable
Note payable A
Note payable B
Mortgage payable
Accrued interest
Other liabilities
Total
Assets to be applied:
Inventory
Inventory
Receivables
Equipment
Equipment
Land
Cash
Other assets
Total
Recovery
Partially
Secured
Unsecured
W/Priority
Unsecured
W/O Prio.
P150,000
40,000
200,000
P10,000
P10,000
14,000
P404,000
P560,000
300,000
180,000
12,000
P322,000
Realizable
Value
P 150,000
200,000
360,000
300,000
60,000
260,000
60,000
45,000
P1,435,000
P860,000
P130,000
P 20,000
P200,000
360,000
300,000
P322,000
P860,000
P10,000
60,000
68,000
50,000
45,000
P243,000
100%
100%
100%
60.15%
192,000
P10,000
5.
d
Total consideration to be received by Note B:
Partially secured portion
Unsecured portion (P200,000 x 60.15%)
Total consideration received
P300,000
120,300
P420,300
Total
P 280,000
600,000
500,000
180,000
12,000
24,000
P1,596,000
P 150,000
200,000
360,000
300,000
60,000
260,000
60,000
45,000
P1,435,000
138
Chapter 7
SOLUTIONS TO PROBLEMS
Problem 7 1
(A)
Laguna Company
Statement of Affairs
October 31, 2011
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities ...................... _ 50,400
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
4,000 .. ...
46,000 .. ...
2,000 .. ...
P198,000
Book
Value
Free Assets:
Cash............................................................. P 4,000
Accounts, receivable ...................................
46,000
Supplies ....................................................... __1,500
Total free assets ...............................................
Less: Unsecured liabilities with priority..........
Net Free Assets................................................
Estimated deficiency to unsecured creditors (to balance)
Creditors'
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable ..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800 ... ... Wages payable
P 5,800
1,200 ... ... Property taxes payable ................................
_1,200
Total ............................................................
P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................
19,000 ... ... Notes payable ..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Claim
Unsecured liabilities with priority ....................................
P7,000
Fully secured creditors ......................................................
50,400
Partially secured creditors.................................................
21,000
Unsecured creditors without priority ................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Free Assets
P17,000
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
60,000
19,000
_____
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
Percentage
to be paid
100.0%
100.0%
96.4%
75.0%
139
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2011
Assets to be realized:
Land ....................... P10,000
Building ................. 43,000
Equipment .............. 28,000
Patents .................... __4,400
Assets Acquired ..............
P85,400
0
Liabilities liquidated:
Account payable .... P14,000
Loans payable ........ __7,000
21,000
99,000
66,000
33,000
Assets realized:
land.............................. P
0
Building ......................
0
Equipment ...................
8,800
Patents ......................... _12,000
Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000
P20,800
66,000
Liabilities to be liquidated:
Accounts payable ........ P80,000
Loans payable ............. _40,000
120,000
___6,200
P213,000
P 66,000
33,000
( 26,300)
VC Corporation
Statement of Financial Position
January 31, 2011
Cash ............................................... P 6,700
Land ...............................................
10,000
Building ..........................................
43,000
Equipment ...................................... _13,000
Total ............................................... P 72,700
P 72,700
VC Corporation
Estate Deficit
January 31, 2011
Gain on realization ....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization...............................................................
Estate deficit, January 1, 2011 ...................................................
Estate deficit, January 31, 2011 .................................................
P 7,600
( 6,200)
( 1,300)
P 100
( 26,400)
P(26,300)
140
Chapter 7
Problem 7 3
Rizal Corporation
Statement of Affairs
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building ..............................................
Less: Mortgage payable .....................................
50,000 ...... .... Finished Goods ..................................................
Less: Loan payable .............................................
Free Assets:
Cash....................................................................
AR (20% x 30,000) ............................................
Inventory Materials .........................................
Prepaid expense ..................................................
Trucks ................................................................
Equipment ..........................................................
Intangible ...........................................................
Total Free Assets ....................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets .........................................................
________
Estimated deficiency to unsecured creditors (to Balance)
P 292,000 ...... .... Total unsecured liabilities .......................................
4,000 ...... ....
8,000 ...... ....
36,000 ...... ....
1,000 ...... ....
8,000 ...... ....
45,000 ...... ....
16,000 ...... ....
Book
Values
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
4,000
6,000
27,000
0
2,500
25,000
_______
Creditors'
Claim
12,000
8,000
20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ...............................................
110,000 ...... .... Stockholder Loan ...............................................
( 38,000) ...... .... Stockholder Equity .................................................
P 292,000
Total ........................................................................
5,000
64,500
P128,500
20,000
108,500
81,000
P189,500
Unsecured
Liabilities
94,000
50,000
144,000
25,000
24,000
5,000
3,500
P 59,000
24,000
3,500
27,500
Free
Assets
77,000
110,000
P 1,000
1,500
187,000
P189,500
141
Problem 7 4
Mapayapa Corporation
Statement of Affairs
November 1
Book
Value
Estimated
Assets
Realizable Value
Assets pledged to fully secured creditors:
P60,000.... ... Investments ................................................. P 69,000
180,000.... ... Accounts receivable ....................................
171,000
Total ............................................................
240,000
Less: Note payable ......................................
210,000
66,000.... ...
258,000.... ...
291,000.... ...
870,000.... ...
114,000.... ...
.... ...
_________
P1,839,000
P 30,000
Free assets:
Cash............................................................. P 66,000
Accounts receivable .................................... 193,500
Merchandise inventory................................ 180,000
Plant & equipment ...................................... 330,000
Notes receivable .......................................... 108,300
Patent........................................................... __12,000
Total free assets...........................................
Less: Unsecured liabilities with priority..........
Net free asset ...............................................
Estimated deficiency (to balance) ...................
Total ................................................................
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
Free
Assets
P210,000
P 7,200
___6,600
P 13,800
P960,000
6,300
_______
P966,300
142
Chapter 7
Problem 7 5
a.
b.
P471,000
__23,500
P 91,500
P 70,000
__95,000
P165,000
356,000
115,000
P91,500
= 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000 ....
9,500 ....
14,000.....
125,000 ....
70,000
Bonds payable & interests
231,000 ....
Total estimated payment ........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
143
Problem 7 6
1.
Evergreen Company
Statement of Affairs
June 30, 2011
Book
Values
P460,000
80,000
140,000
100,000
120,000
100,000
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
Land and building .....................................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
Cash .........................................................
P 80,000
Accounts receivable net .........................
126,000
Inventories ................................................
84,000
Machinery net ........................................
40,000
Goodwill ...................................................
_ _____0_
Available for
Unsecured
Creditors
P 10,000
330,000
340,000
_140,000
200,000
_130,000
P1,000,000
P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
P120,000
20,000
300,000
30,000
Total .........................................................
Fully secured creditors
Mortgage payable .....................................
Interest on mortgage payable ....................
220,000
100,000
10,000
Total .........................................................
P330,000
Unsecured creditors
Accounts payable ...................................... ...................
Note payable-unsecured............................ ...................
Interest payable-unsecured ....................... ...................
Stockholders' Equity
400,000 Capital stock .............................................
(200,000) Retained earnings (deficit) ........................ ...................
Unsecured
Non-priority
Liabilities
P120,000
__20,000
P140,000
300,000
__30,000
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
144 ____
Chapter 7
Problem 7 7
1.
P100,000
80,000
2,000
6,000
160,000
40,000
16,000
72,000
40,000
200,000
52,000
16,400
145
2.
Financial Statements
Kimerald Corporation in Trusteeship
Statement of Financial Position
March 31, 2011
Assets
Cash ..................... ................................................. ...................
P242,000
P100,000
80,000
2,000
6,000
160,000
__16,400
P364,400
_122,400
P242,000
P 8,000
242,000
____0
P242,000
_234,000
P 40,000
P122,400
_162,400
146
Chapter 7
3.
160,000
24,400
57,600
122,400