TRUE OR FALSE

1. Income tax payable is not part of unsecured liabilities without priority.

2. If the corporation has an inability to pay debts because of lack of cash or

other liquid assets, it immediately means that it is insolvent.

3. A corporation undergoing liquidation needs to follow the measurement bases

prescribed in the Conceptual Framework and in the PFRSs.

4. Cash is reported in the Statement of Realization and Liquidation because it is part of

assets.

5. Unsecured claims with priority would always be paid in full amount or the
percentage of recovery is 100 percent.

6. Assets to be realized do not include cash.

7. Estimated estate deficit is computed by subtracting net free assets from total unsecured
liabilities.
8. Corporate liquidation refers to the extinguishment of the juridical personality of a
corporation for causes expressly provided by law.
9. Corporate termination is the process of winding up the affairs of the corporation by
settling its corporate debts and distributing the remainder to the stockholders.
10. Deficiency refers to the negative Retained Earnings with negative or debit balance.
This will normally require a company to undergo quasi-reorganization a.k.a. corporate
rehabilitation.
11. Deficit refers to stockholders' equity with negative or debit balance and this will
result to corporation liquidation.
12. Fully Secured Claim - refers to secured claim with a collateral higher than the amount of
the claim.

13. Partially Secured Claim - refers to secured claim with a collateral lower than the amount
of the claim.

14. Liabilities not liquidated represents ending balance of liabilities.

15. Net free assets divided unsecured liabilities without priority liabilities equals percentage
of recovery for secured creditors.
PROBLEM 1
Miranda Kerr Corp. a bankrupt entity has undergone corporate liquidation. Presented below is its statement of
financial position before the start of liquidation:
Cash P 300,000 Accounts Payable P 100,000
Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loans Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)
The following additional data are provided:
 Liquidation expenses amounting to P600,000 were paid.
 The loans payable is secured by the machinery which has fair value of P300,000.
 The mortgage payable is fully secured by the building.
 At the end of liquidation, the holder of loans payable received P340,000.

1. What is the recovery percentage of unsecured creditors without priority?

2. What is the amount received by the holder of accounts payable at the end of liquidation?

3. What is the amount of net free assets available at the end of liquidation?

4. What is the fair value or realizable value of building?

5. What is the percentage of recovery of the Partially Secured Liabilities?

6. How much is the estimated payments to all liabilities?

7. What is the estimated gain or loans on realization?

8. How much is the estimated deficiency?

PROBLEM 2
In 2020, Kelsey Merritt Corp. was forced into bankruptcy and begun to liquidate. The following selected account
balances were taken from its statement of affairs:
Estimated
Current
Book Value Value

Assets pledged with partially secured creditors

P 80,000 P 50,000
Total free assets 220,000 160,000
Book Value Amount
Unsecured

Preferred claims P 16,000 P0

Partially secured liabilities 75,000 25,000
Unsecured liabilities 155,000 155,000

1. What is the total amount available for payment of claims of unsecured creditors without priority?
2. What is the estimated amount of liquidating dividend per peso claim?
3. What is the amount of deficiency to creditors?
4. How much is the estimated payments to all liabilities?
 PROBLEM 3
The accountant of Doutzen Kroes Corp. prepared a statement of affairs. Total Free Assets is amounting to
P700,000. Unsecured claims of all classes totaled to P1,050,000 including the excess of partially secured
claims over the related asset. The following data are claims deemed outstanding:

1. Accrued salaries, P15,000.

2. Unrecorded note for P10,000, on which P600 of interest has accrued held by Normandy Co.
3. A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by Jones Co.
4. A P15,000 note, on which P300 interest has accrued held by James Pty. Property with a book value of
P10,000 and a market value of P18,000 is pledged to guarantee payment of principal and interest.
5. Unpaid income taxes of P35,000.

What is the amount realized by partially secured creditors?

PROBLEM 4
Adriana Lima Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement of
liquidation and realization is presented below:
 Assets to be realized 1,375,000

Assets acquired 750,000

Assets
Assets realized 1,200,000

Assets not realized 1,375,000

Liabilities liquidated 1,875,000

Liabilities
Liabilities not liquidated 1,700,000

Liabilities to be liquidated 2,250,000

Liabilities assumed 1,625,000

Revenues and Supplementary charges 3,125,000

Expenses Supplementary credits 2,800,000

How much is the net gain (loss) for the three-month period ending March 31?
 PROBLEM 5
The following information was taken from the statement of realization and liquidation of Lily
Aldridge Co.:

Assets to be realized 2,000,000

Assets not realized 220,000
Assets realized 1,180,000
Liabilities not liquidated 1,290,000
Liabilities to be liquidated 1,900,000
Supplementary expenses 40,000
Supplementary income 50,000
Estate Deficit 970,000

How much is the ending balance of cash?

PROBLEM 6
The following summarizes the result of liquidation of Alessandra Ambrosio Inc:
Gain on Realization of Assets P12,345
Additional Assets During Liquidation 54,321
Loss on Realization of Assets 76,543
Additional Liabilities During Liquidation 93,324
Share Capital 233,323
Deficit 6,666

How much are the net assets available to shareholders?