CHAPTER 13 MULTIPLE CHOICES

PROB. 13-1 (Adapted)

Which of the following best illustrates the insolvency of a firm?

a. The filing of bankruptcy proceedings against the firm

b. A deficit in the firm’s retained earnings
c. The firm has more liabilities than assets
d. The firm has negative working capital

PROB. 13-2 (RPCPA)

If the value of the pledged property is lesser than the obligation, what is the treatment of the liability?

a. Partially secured
b. Fully secured
c. Collateral

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d. Unsecured

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PROB. 13-3 (Adapted)

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The primary difference between a balance sheet and an accounting statement of affaires is that:

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a. A balance sheet reflects book values, while a statement of affaires emphasizes realization
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values.
b. Assets are arranged in a different sequence
c. Liabilities are arranged in a different sequence
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d. Owners’ equity is not considered in the statement of affairs

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PROB. 13-4 (Adapted)

An accounting statement of affairs of a corporation in financial difficulty indicates that unsecured

creditors would receive P0.40 on the peso. Which one of the following assets is most likely to realize the
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smallest percentage of its book value?

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a. Accounts receivable
b. Inventories
c. Plant and equipment
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d. Goodwill
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PROB. 13-5 (Adapted)

If a dividend of 80% is allocate to Class 7 unsecured creditors vased on an accounting statement of

affaires, it correctly may be concluded that
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a. All unsecured claims will receive the same percentage of return

b. All unsecured claims will be paid in full
c. Class 1 through 6 unsecured claims will be paid in full
d. Stockholders will receive 20% of their equity

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 PROB. 13-6 (Adapted)

An arrangement for creditors to accept an amount less than the amount owed to them is referred to as
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a. Charge and discharge agreement

b. Composition agreement
c. Bankruptcy agreement
d. Chandler agreement

PROB. 13-7 (Adapted)

In a liquidation proceeding, if the proceeds on the realization of an assets exceed the lien against that
asset, the excess is assigned to

a. The holder of the lien

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b. Other lien holders whose assets will not realize a sufficient amount to cover theor liens
c. Meet the claims of the unsecured creditors

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d. The stockholders of the corporation

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PROB. 13-8 (Adapted)

Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying claims.
Unsecured claims will be paid at the rate of P0.40 on the peso. Hale holds a P30,000 noninterest bearing
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note receivable from Seco collaterized by an asser with a book value of P35,000 and a liquidation value
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of P5,000
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The amount to be realized by Hale on this note is

a. 5,000
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b. 12,000
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c. 15,000
d. 17,000

PROB. 13-9 (AICPA)

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Kent Co. filed a voluntary bankruptcy petition on August 15, 2009, and the statement of affairs reflected
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the following amounts:

Estimated
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Book Current

Value Value

Assets

Assets pledged with fully secured creditors P 300,000 P 370,000

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 Assets pledged with partially secured

Creditors 180,000 120,000

Free assets 420,000 320,000

P 900,000 P 810,000

Liabilities

Liabilities with priority P 70,000

Fully secured creditors 260,000

Partially secures creditors 200,000

Unsecured creditors 540,000

P 1,070,000

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Assume that the assets are converted to cash at the estimated current values and the business is

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liquidated. What amount of cash will be available to pay unsecured non-priority claims?

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a. 240,000

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b. 280,000
c. 320,000 rs e
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d. 360,000
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PROB. 13-10 (AICPA)

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Scott Company filed a voluntary bankruptcy petition on June 25, 2009, and the statement of affairs
reflects the following amounts:

Book Estimated
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Carrying Current
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Amount Value_

Assets
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Assets pledged with fully secured creditors P 160,000 P 190,000

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Assets pledged with partially secured

creditors 90,000 60,000

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Free assets 200,000 140,000

P 450,000 P 390,000

Liabilities

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 Liabilities with priority P 20,000

Fully secured creditors 130,000

Partially secures creditors 100,000

Unsecured creditors 260,000

P 510,000

Assume that the assets are converted into cash at the estimated current values and the business is
liquidated. What total amount of cash should the partially secured creditors receive?

a. 60,000
b. 84,000
c. 90,000
d. 100,000

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PROB. 13 – 11 (Adapted)

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In 2009, Camel Corp. was forced into bankruptcy and begun to liquidate. The following selected

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account balances were taken from its statement of affairs:

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Estimated
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Book Current

Value Value
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Assets pledged with partially secured creditors P 80,000 P 50,000

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Total free assets P 220,000 P 160,000

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Book Amount

Value Unsecured
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Preferred claims P 16,000 P 0

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Partially secured liabilities 75,000 25,000

Unsecured liabilities 155,000 155,000

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a. What is the total amount available for payment of claims of unsecured creditors?

a. 0
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b. 144,000
c. 160,000
d. 210,000

b. What is the estimated amount of liquidating dividend per peso claim (rounded to the nearest
centavo)?

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 a. 0.80
b. 0.88
c. 1.03
d. 1.17

c. What is the amount of deficiency to creditors?

a. 180,000
b. 160,000
c. 144,000
d. 36,000

PROB. 13 – 12 (Adapted)

In May 2009, it was determined that it is necessary to complete the work in process of Wild
West Corp. To complete the work in process, P10,000 book value of raw materials and supplies and
P10,000 conversion cost will be required.

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When completed, these goods will probably sell for approximately P50,000. The raw materials,

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which have a book value of P40,000, have an estimated total realizable value of P20,000. What is the

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estimated amount that will become available for unsecured creditors ass a result of the realization of

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the work in process?
a. 50,000
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b. 35,000
c. 30,000
d. 0
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PROB. 13 – 13 (Adapted)
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The following selected account balances were taken from the balance sheet of Quitting Corp. as
of December 31, 2009, immediately before the take over of the trustee:
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Marketing securities P 300,000

Inventories 110,000
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Land 150,000
Building 400,000
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Additional information:
 Marketable securities have present market value of P320,000. These securities have been
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pledged to secure notes payable of P280,000>

 The estimated worth of inventories is P70,000. Howerver, inventories with book value of
P50,000 have been pledged to secure notes payable of P60,000. The realizable value of the
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inventories pledged is estimated to be P40,000.

 Land and building are estimated to have a total realizable value of P450,000. This property is
pledged to secure the mortgage payable of P250,000.

a. What is the estimated amount available for preffered claims and unsecured creditors out of assets
pledged with fully secured creditors?

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 a. 840,000
b. 810,000
c. 770,000
d. 240,000

PROB. 13 – 14 (Adapted)

The accountant of Drifting Corp. prepared a statement of affairs. Assets which there are no claims
are expected to produce P700,000. Unsecured claims of all located to P1,050,000. 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

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of P10,000 and a market value of P18,000 is pledged to guarantee payment of principal and

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interest.

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5. Unpaid income taxes od P35,000

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What is the amount realized by partially secured creditors?

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a. 10,600
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b. 19,500
c. 24,900
d. 27,900
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