CORPORATE LIQUIDATION

1. Philippine National Bank holds a P500,000 note secured by a building owned by

Luigi Software, which has filed for bankruptcy. If the property has a book value of
P600,000 and a fair market value of P450,000, what is the best way to describe the
notes held by the Philippine National Bank? The bank has

a. A secured claim of P500,000

b. An unsecured claim of P500,000.
c. A secured claim of P450,000 and an unsecured claim of P50,000.
d. A secured claim of P50,000 and an unsecured claim of P50,000.

2. X and Y Inc. owes the Xylo Corporation P60,000 on account, which is secured by
accounts receivable with a book value of P50,000. The unsecured portion is
considered a claim under the bankruptcy law, X and Y has filed for bankruptcy. Its
statement of affairs lists the accounts receivables securing the Xylo account with an
estimated realizable value of P45,000. If the dividend to general unsecured creditors
is 80%, how much can Xylo expect to receive?

a. P60,000 c. P57,000
b. 58,000 d. 48,000

3. P Corporation is a parent, having purchased 60% of S Company’s common stock at

par value for P600,000. S Company is in financial difficulty. The parent granted as
unsecured loan of P200,000 to its subsidiary. An accounting statement of affairs for
S Company shows a dividend of 30%. P Corporation can expect to receive payment
for its investment in S Company of approximately:

a. P600,000 c. P108,000
b. P180,000 d. 0

4. The trust for Ardolio, Inc. prepares a statement of affairs which shows that
unsecured creditors whose claims total P60,000 may expect to receive
approximately P36,000 if assets are sold for the benefits of the creditors.

• Michael is an employee who is owed P750.

• Meldcan holds a note for P1,000 on which interest of P50 is accrued; nothing
has been pledged on the note.
• Compboy holds notes of P6,000 on which interest of P300 is accrued:
securities with a book value of P6,500 and a present market value of P5,000
are pledged on the note.
• Serpor holds a note of P2,500 on which interest of P150 is accrued, property
with a book value of P2,000 and a present market value of P3,000 is
pledged on the note.

How much mar each of the following creditors hope to receive?

 Michael Meldcan Campboy Serpor a. P 0 P 0 P 0 P 0
b. 90 0 6,300 2,390
c. 350 1,050 5,780 0
d. 750 630 5,780 2,650

5. Erap Co. filed a voluntary bankruptcy petition on August 15,20x5, and the statement
of affairs reflects the following amounts:

Book value Estimated

current value
Assets:
Assets pledged with fully secured creditors P300,000 P370,000
Assets pledged with partially secured creditors 180,000 120,000
Free Assets 420,000 320,000
P 900,000 P810,000

Liabilities
Liabilities with Priority P70,000
Fully Secured creditors 260,000
Partially secured creditors 200,000
Unsecured creditors 540,000
P1,070,000

Assume that the assets are converted to cash at the estimated current values and
the business is liquidated. What amount of cash will be available to pay unsecured
nonpriority claim?

a. P240,000 c. P320,000
b. 280,000 d. 360,000

6. The following data are provided by the Troubled Company:

Assets at book value P150,000 Assets at net realizable value

105,000
Liabilities at book value:
Fully Secured mortgage 60,000 Unsecured
accounts and notes payable 70,000
Unrecorded liabilities:
Interest on bank notes 500
Estimated cost of administering estate 6,000

The court has appointed a trustee to liquidate the company. The journal entry made
by the trustee to record the assets and liabilities should include an estate deficit of:
 a. P31,500 c. 25,500
b. 31,000 d. 25,000

7. Katherine, a CPA, has prepared a statement of affairs. Assets which there are no
claims or liens are expected to produce P70,000, which must be allocated to
unsecured claims of all classes totaling P105,000. The following are some of the
claims outstanding:
• Accounting fees for Katherine, P1,500.
• An unrecorded note for P1,000, on which P60 of interest has accrued, held
by Angie.
• A note for P3,000 secured by P4,000 receivables, estimated to be 60%
collectible held by Joy.
• A P1,500 note, on which P30 interest has accrued, held by Joyots. Property
with a book value of P1,000 and a market value of P1,800 is pledged to a
guarantee payment of principal and interest.
• Unpaid income taxes of P3,500.

Compute the estimated payment to partially secured creditors:

a. P1,060 c. P2,490
b. 1,950 d. 2,790

The Palubog Company has decided to seek liquidation after previous restructuring
and quasi-reorganization attempts failed. The company has the following
condensed balance sheet as of May 1, 20x5:

Assets Liabilities and Stockholders’ Equity

Cash P 12,000 Accrued payroll P 40,000
Receivables (net) 280,000 Loans from officer 50,000
Inventory 70,000 Accounts Payable 60,000
Prepaid expenses 1,000 Equipment loan payable 360,000
Plant Assets 300,000 Business loan payable 180,000
Goodwill 39,0000 Common Stock 60,000
Deficit ( 48,000)
Total P702,000 Total P702,000

The equipment loan payable is secured by specific plant assets having a book value
of P300,000 and a net realizable value of P350,000. Of the accounts payable,
P40,000 is secured by inventory which has a cost of P40,000 and a liquidation value
of P44,000. The balance of the inventory has a realizable value of P32,000.
 Receivables with a book value and a market value of P100,000 and P80,000
respectively have been pledged as collateral on the business loan payable. The
balance of the receivables have a realizable value of P150,000.

8. The realizable value of assets pledged with fully secured creditors is:
a. P459,000 c. P40,000
b. 44,000 d. P489,000

9. Of those creditors who are partially secured, their unsecured amounts are:
a. P 430,000 c. P 540,000
b. 110,000 d. 120,000

10. The total realizable value of free assets to unsecured creditors before unsecure
creditors with priority is:
a. P 628,000 c. P 220,000
b. 232,000 d. 198,000

12. The dividend to unsecured creditors or the expected recovery percentage of

unsecured creditors (rounded) is:
a. 90% c. 88%
b. 100% d. 76%

13. Estimated deficiency to unsecured creditors is:

a. P –0-- c. P 2,000
b. 22,000 d. 12,000

14. Estimated loss on asset disposition is:

a. P 51,000 c. P51,000
b. 89,000 d. 90,000

15. Estimated gain on asset disposition is:

a. P56,000 c. P52,000
b. 54,000 d. 6,000

16. Estimated amount of paid to unsecured creditors with priority is:

a. P10,000 c. P40,000
b. 30,000 d. 110,000

17. Estimated amount paid to fully secured creditors is:

a. P40,000 c. P470,000
b. 390,000 d. 430,000

18. Estimated amount paid to unsecured creditors without priority is:

a. P70,000 c. P20,000
b. P61,600 d. 50,000

19. Estimated payment to partially secured creditors is:

 a. P358,800 c. P168,000
b. 516,800 d. 430,000

20. Estimated payment to creditors is (discrepancy is expected due to rounding off).

a. P580,000 c. P571,000
b. 659,600 d. 668,400