Prob.

1
MM financial position before the start of its liquidation is as follows:
ASSETS LIABILITIES AND EQUITY
Cash 138,400 Accounts payable 3,200,000
Accounts receivable 1,200,000 Income tax payable 1,800,000
Prepaid expenses 50,000 Note payable (secured by equipment) 2,000,000
Inventory 3,120,000 Loan payable (secured by land and bldg.) 2,400,000
Land 1,600,000 Share capital 4,000,000
Building 2,400,000 Retained earnings (deficit) (3,991,600)
Equipment, net 800,000
Goodwill 100,000
TOTAL 9,408,400 TOTAL 9,408,400
Additional information:
- Only 50% of the accounts receivable is collectible.
- The entire inventory is expected to be sold half the price.
- The land and building are expected to be sold at a lump sum price of 4,600,000.
- The equipment is expected to be sold at carrying amount but after refurbishment costs of 140,000.
- Certain accounts payable are measured gross of 46,000 cash discount which MM intends to take. A supplier
waived repayment of a P 840,000 account.
- The prepayments are fully refundable.
- The taxing authority gave MM a six-month tax amnesty to settle the tax liability for 1,560,000.
- Interests of 160,000 and 140,000 are expected to be paid on the note and loan, respectively.
- Liquidation costs of 240,000 are expected to be incurred.
- Accrued wages payable not yet recorded amounted to 320,000.

How much of the assets will be available to unsecured liabilities?

How much is the estimated deficiency to unsecured creditors without priority?
Which of the following statements is true?
a. Shareholders of MM can expect to receive 60% of their claims.
b. The lender of the loan payable will receive 60% of its claim.
c. Employees of MM can expect to receive only 60% of their claims.
d. The issuer of the note payable will receive 1,560,000.

Prob. 2
A company is to be liquidated and has the following liabilities:
Income taxes 8,000
Notes payable (secured by land) 120,000
Accounts payable 83,000
Salary payable 6,000
Bonds payable (secured by building) 70,000
Administrative expenses for liquidation 20,000
The company has the following assets:
Book Value Fair Value
Current assets 80,000 33,550
Land 100,000 90,000
Building and Equipment 100,000 110,000

How much will the holders of notes payable collect following the liquidation?

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Prob. 3
Because of inability to pay its debts, the KDC Manufacturing Company has been forced into bankruptcy as of June 30,
2021. The Statement of Financial Position on that date shows:
Assets Liabilities and Equity
Cash 5,665 Accounts Payable 52,500
Accounts Receivable 39,350 Notes Payable – BPI 15,000
Notes Receivable 18,500 Notes Payable - Suppliers 51,250
Inventories 87,850 Accrued Wages 1,850
Prepaid Expenses 950 Accrued Taxes 4,650
Land and Buildings 61,250 Mortgage Bond Payable 90,000
Equipment 48,800 Common Stock – P100 par 75,000
Retained Earnings (27,885)
262,365 262,365

Additional Information:
a. Only 16,110 of Accounts Receivable and 12,500 of Notes Receivable are expected to be collectible. The good
notes are pledged to Bank of the Philippine Islands.
b. Inventories are expected to realize 45,100 when sold under insolvency.
c. Land and Buildings have an appraised value of 95,000. They serve as security on the bonds.
d. The current value of the equipment, net of disposal cost is 9,000.

1. The estimated loss on asset disposition is

2. What is the estimated gain on asset disposition?
3. The expected recovery percentage is:
4. Assuming the correct expected recovery percentage as computed above, how much is the amount expected to be
paid for the accrued wages and accrued taxes?

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