ACCTG 7 – Advanced Accounting 1

CORPORATE LIQUIDATION
Quiz

Problem 1

Dissolved Corporation filed a voluntary petition for bankruptcy on January 2016. On March 31, 2016, the
trustee provided the following information about the corporation’s financial affairs:

Book Value Estimated

Realizable Values
Assets:
Cash P 80,000 P 80,000
Accounts receivable – net 400,000 300,000
Inventories 600,000 280,000
Plant assets – net 1,000,000 1,120,000
Total Assets P 2,000,000

Liabilities:
Liabilities for priority claims P320,000
Accounts payable – unsecured 600,000
Notes payable, secured by accounts receivable 400,000
Mortgage payable, secured by all plant assets 880,000
Total liabilities P2,200,000
1. Determine the amount expected to be available for unsecured claims (net free assets):
a. P280,000 c. 620,000
b. P 600,000 d. P1,160,000
2. Determine the expected recovery per peso of unsecured creditors:
a. P.40 c. P.89
b. P.86 d. P 1.66
3. Determine the estimated payment to creditors:
a. P900,000 c. P1,540,000
b. P1,460,000 d. P1,780,000
Problem 2

The following selected account balances were taken from the balance sheet of Quitting Corp. as of
December 31, 2016, immediately before the takeover of the trustee:

Marketable securities P300,000

Inventories 110,000
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 pledged
to secure notes payable of P280,000.
 The estimated worth of inventories is P70,000. However, inventories with book value of P50,000
have been pledged to secure notes payable of P60,000. The realizable value of the 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

4. What is the estimated amount available for preferred claims and unsecured creditors out of assets
pledged with fully secured creditors?
a. P240,000 c. P810,000
b. P770,000 d. P840,000

5. What is the total amount of net free assets?

a. P240,000 c. P770,000
b. P270,000 d. P810,000
Problem 3

On December 15, 2016, the Statement of Affairs of Loser Corporation, which is in bankruptcy
liquidation, included thefollowing:

Assets pledged for fully secured liabilities P100,000

Assets pledged for partially secured liabilities 40,000
Free assets or unpledged assets 120,000

Unsecured creditors with priority P60,000

Fully secured creditors 80,000
Partially secured creditors 50,000
Unsecured creditors without priority 90,000

6. The estimated amount to be paid to fully secured creditors is:

a. P60,000 c. P70,000
b. P64,000 d. P80,000

7. The estimated amount to be paid to partially secured creditors is:

a. P48,000 c. P58,000
b. P50,000 d. P60,000

8. The estimated amount to be paid to unsecured creditors without priority is:

a. P70,000 c. P80,000
b. P72,000 d. P88,000

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Problem 4

The unsecured creditors of RR Corporation filed voluntary bankruptcy petition on July 1, 2016. The court
order for relief was granted on July 10 at which time an interim trustee was appointed to supervise
liquidation of the corporation. A listing of assets and liabilities of RR Corporation as of July 10, 2016,
along with estimated realizable value is as follows:

Book Value Estimated

Current Value
Assets:
Cash P 80,000 P 80,000
Accounts receivable net 210,000 160,000
Inventories 200,000 210,000
Equipment – net 150,000 60,000
Land and building – net 250,000 140,000
Intangible assets 10,000
P 900,000 P 650,000
Liabilities and Shareholder’s Equity
Accounts payable P350,000
Notes payable 100,000
Wages payable (June and July) 24,000
Taxes payable 126,000
Mortgage payable P200,000, plus P5,000 205,000
unpaid interest on July 10
Share capital 300,000
Retained earnings (deficit) (205,000)
P900,000

Additional information:

1. Accounts receivable are pledged as security for the notes payable.

2. No more than P1,000 is owed to any employee.
3. Taxes payable are a priority item.
4. The mortgage payable and interest are secured by land and buildings.
5. Trustee fees and other costs of liquidating the estate are expected to be P11,000.

9. Determine the expected return on the peso for unsecured nonpriority claims:
a. P.98 c. P.75
b. P.62 d. P.60

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Problem 5

The following data are presented to you:

Shareholders’ equity per books:

Capital stock 100,000
Deficit 15,500
Balance 84,500

Estimated gain on realization of assets:

Land and buildings 22,500

Estimated loss on realization of assets:

Accounts receivable 6,600
Inventories 24,000
Prepaid insurance 600
Machinery and equipment 20,000
Goodwill 45,000
96,200
Estimated claims requiring settlement, not recorded on books:
Liquidation costs 5,000
Other liabilities 7,500
12,500
10. The estimated deficiency to unsecured creditors is
a. 1,500 c. 1,700
b. 1,600 d. 1,800

11. The estimated gross loss on the realization of assets

a. 84,500 c. 108,700
b. 86,200 d. 96,200
Problem 6

The Global Corporation is undergoing liquidation and has the following condensed statement of financial
position as of January 1, 2018:

Assets Liabilities and SHE

Cash P114,200 Salaries Payable P50,000
Receivables 340,800 Accounts Payable 108,500
Inventory 80,000 Mortgage Payable 400,000
Prepaid Expenses 2,500 Loan Payable 220,000
Building (net) 345,000 Note Payable 80,000
Goodwill 55,000 Ordinary shares 120,000
Deficit (41,000)
Total Assets P937,500 P937,500

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The mortgage payable is secured by the building having a realizable value of P360,000. Accounts payable
amounting to P60,000 is secured by the receivables amounting to P85,200 which is collectible in the
amount of P68,160. The balance in the book value of the receivables which has a realizable value of
P235,000 is used to secure the loan payable. The inventory has a realizable value of P53,000. In addition
to recorded liabilities are accrued interest on mortgage payable amounting to P4,000, liquidation expenses
amounting to P9,500 and taxes amounting to P4,000 (use two decimal places for the recovery percentage)

12. Which of the following statements is wrong?

a. The estimated deficiency to unsecured creditors is P45,640.
b. Payment to partially secured creditors is P392,358.
c. Payment to unsecured creditors without priority is P94,499.
d. Estimated loss on asset realization is P107,140.

Problem 7

The following information are related to Terminal Corporation which is undergoing liquidation:

a. Bonds payable amounting to P73,600 is secured by Merchandise Inventory with book value of
P123,000 and net realizable value of 2/3 of the recorded amount.
b. Of the P195,600 account payable, P55,000 is secured by equipment with carrying amount of
P76,800 which is 70% realizable.
c. Building with a carrying amount of P129,000 has a net realizable value of P99,000.
d. Other unrecorded liabilities are accrued interest payable on bonds, P3,100; salaries payable,
P17,400; taxes payable, P11,600; and trustee’s fee, P8,500.
e. Cash available prior to liquidation amounts to P11,900.
f. Total assets of Terminal Corp. presented in the statement of financial position prior to liquidation
amounts to P480,000, except for prepaid expenses and goodwill with recorded amounts of P7,600
and P22,000, respectively, remaining assets other than those whose realizable values were
mentioned above have a realizable value of 60% of he recorded amount.
g. Total liabilities of Terminal Corp. presented in the statement of financial position prior to
liquidation amounts to P380,000.

13. Compute for the estimated deficiency to unsecured liabilities.

a. P51,696 c. P120,020
b. P108,120 d. P67,520
Problem 8

Twisted Corporation is undergoing liquidation. The trustee of Twisted Corp. presented the following
information: Assets amounting to P125,000 are available to unsecured liabilities without priority. Assets
amounting to P110,000 represents assets originally not pledged to any liabilities. Unpaid liabilities are as
follows: administrative expenses: P21,000; taxes: P18,000 and wages: 32,000. Accounts payable and
notes payables totaled P180,000. No assets were pledged on the said liabilities. Payment to fully secured
creditors and partially secured creditors amounts to P139,000 and P144,000 respectively. The expected
recovery percentage is 40 percent.

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14. Amount of assets pledged to fully secured creditors
a. P139,000 c. P235,000
b. P225,000 d. P249,000

15. Total liabilities

a. P522,500 c. P613,500
b. P534,000 d. P580,000

16. The amount to be paid to all creditors

a. P426,000 c. P479,000
b. P187,500 d. P210,000
Problem 9

FVG Corporation has been undergoing liquidation since January 1. As of June 30, its condensed
statement of realization and liquidation is presented below:

Assets realized P 525,000

Interest on Investment 2,625
Purchases 26,250
Assets Acquired 87,500
Liabilities assumed 26,250
Payment of expenses of trustee 131,250
Liabilities to be liquidated 1,137,500
Sales on Account 87,500
Assets not realized 735,000
Liabilities not liquidated 557,375
Sales for cash 437,500
Assets to be realized 1,662,500
Liabilities liquidated 612,500

17. The net gain (loss) on realization and liquidation is:

a. P306,250 c. P(306,250)
b. P(126,000) d. P126,000
Problem 10

The following are the data before liquidating of XXX Corporation:

Cash P25,000 Accounts Payable P325,000

Short term investment 75,000 Capital stock 250,000
Accounts Receivable 150,000 Deficit (75,000)
Inventory 250,000
Total assets P500,000 Total P500,000

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Transactions during liquidation that did not involve cash were as follows:

Sale of merchandise on account P25,000

Purchase of merchandise on account 7,500

Cash receipts and disbursements

Cash Receipts:
Sale of merchandise P125,000
Collections of account receivable 57,500
Sale of marketable securities 92,500
Interest on short term investment 750
Cash disbursement:
Payment of account payable P175,000
Payment of expenses of trustee 37,500
At the end of the year, assets remaining to be realized and liabilities to be liquidated were as follows:

Accounts Receivable beg P150,000

Add: Sales on account 25,000
Less: Collection on account 57,500
Balance determined to be uncollectible 7,500
Accounts Receivable end P110,000

MI beg P250,000
Add: MI acquired 7,500
Less: Cost of goods sold 157,500
MI end 100,000

Accounts Payable beg P325,000

Add: Purchases on account 7,500
Less: Payment on account 175,000
Accounts payable end 157,500

Accrued expenses ending balance P1,750

18. The net loss/gain on realization and liquidation is:

a. P15,000 gain c. P36,000 loss
b. P61,000 loss d. P10,000 loss

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Problem 11

The following data were taken from the statement of realization and liquidation of intercontinental
Corporation for the quarter ended June 30, 2013

Assets to be realized P515,625

Supplementary credits 796,875
Liabilities to be liquidated 843,750
Supplementary charges 731,250
Liabilities liquidated 562,500
Assets acquired 562,500
Assets realized 656,250
Liabilities assumed 281,250
Assets not realized 234,375

The ending capital balances of capital stock and retained earnings are P648,750 and P178,500,
respectively. A net loss of P226,500 for the period.

19. How much is the ending balance of cash?

a. P1,125,000 c. P978,750
b. P1,260,000 d. P807,00

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