Cnrporate Aigeitaton 115 CORPORATE LIQUIDATION Financially Distress Corporation - these are corporation who suffered business failure due to incompetent management, poor operating control, inadequate financing , fraud or other unexpected adverse events in the company. A Financially Distress Corporation may undergo 1. Quasi - Reorganization 2. Troubled Debt Restructuring’ 3. Liquidation Reports Prepared by a Corporation undergoing Liquidation 1, Statement of Affairs -This statement is prepared as of a given point in time: The purpose of this statement is to show the assets and liabilities and of the debtor from a liquidation point of view. Thus, the assets displayed in the statement of affairs are valued at estimated realizable value. b ‘The following are the classification of assets and liabilities: De ‘ a. Assets Pledged with Fuillyrsecuiréd creditors The estimated cash proceeds are equal to or more:than the amount of the secured claim. b. Assets Pledged with Rartially secured creditors ‘The estimated cash proceeds are less tham the amount of the secured claim. c. Free Assets Any assets of the entity that has not been used to secure the payment of any of the company’s liabilities and also it include the excess of the realizable values of assets pledged to fully secured creditors over the realizable values of related liabilities for which these assets have been pledged. Tiawilitres: a. Séeured Liabilities - that which is covered by a collateral asset. The realizable value of the pledged assets is equal to or more'than amount claim. 2. Pantidlly?Secured liabilities These are liabilities secured by assets with a realizable value lessethan the amount of the claim. b, Ufisee0fed Liabilities — that which is not covered'by a pledged asset. 1. Unsecured Liabilities These are liabilities not secured by any assets, but are mandated»byslaw: (Bankruptcy Law) to be paid first in full ahead of any other unsecured liabilities. It includes the following: hee —Corporate Liguidatioa 116 a. Adminis! b. Unpaidvemployee salaries androtheribenefits @ Taxes wanes? 2. Unsecured Liabilities without;Priority. - Is any other type of unsecured liabilities. Expected Recover Percentage = it is the percentage claim of unsecured liabilities and non-priority claims to the net free assets of the corporation. Formula: Expected Recovery % = Net Free Assets Unsecured and Non. ity Claims 2. Statement of Realization and Liquidation - This is the accomplishment statement of the trustee in handling the liquidation, it is intended to show the actual transactions toward the liquidation of the debtor’s estate. The summary of the statement of realization and liquidation is presented as follows: CREDITS DEBITS Assets to be realized Assets realized Assets acquired Assets not realized Liabilities liquidated Liabilities to be liquidated Liabilities not liquidated Liabilities assumed Supplementary credits Supplementary charges Net Gain on Realization and Liquidation Net Loss on Realization and Liquidation ‘The detail explanation of the items in the statement of realization and liquidation: a. Assets to be realized - total non-cash assets at the beginning of liquidation. b. Assets acquired - new assets acquired during the liquidation period. c, Assets realized - the cash realized (proceeds) from the sale of non-cash during the liquidation period. d. Assets not realized - total non-cash assets at the end of the liquidation period (remaining non-cash assets).Corporate Liguttation 117 Liabilities to be liquidated - total liabilities at the beginningoof liquidation. Liabilities assumed — new liabilities incurred during the liquidation period. f. & Liabilities liquidated - the cash payment for the liquidation of liabilities. h. Liabilities not liquidated - total liabilities at the end of the liquidation period (remaining liabilities). Supplementary charges — expenses‘incurred during the liquidation period Joss‘on‘realizationtand write-off). j, Supplementary credits - revenues earned during the liquidation period (Excliding’gain‘onvassetirealization and liabilityisettlement)p Guide in Preparation of Statement of Realization and Liquidation: - It will be posted in the Assets Acquired for the Accounts Receivable to be Debited and Ses ae oe for the Sales Account to be Credited. pp 4 - It will be posted in ‘the Lilies Ascumed for the Accounts Payable to be Credited and Supplementary Charges for the Purchase Account to be Debited. p SoMoiI, OR LIF B. Transactions Involvingi@as? Cash FétéiptS are to be reported as Assets Realized or Supplementary Credits whichever is appropriate. - Cash qpaymiétS are to be reported as Liabilities Liquidated or Supplementary Charges whichever is appropriate. Difference of Statement of Affairs and Statement of Realization and Liquidation 1. The statement of realization and liquidation reports the actual liquidation results while the statement of affairs is of a proforma nature and is based on estimates. 2. The statement of realization and liquidation provides ongoing reporting of the trustee’s activities and is updated throughout the liquidation process, while the statement of affairs is a summary of the estimated’results of @ completed situation.Corporate Liguidation 118 EXERCISES Problem 1: BW Inc. is bankrupt and has undergone corporate liquidation Presented below is its statement of financial position before the start of liquidation: Cash 300,000 . Machinery 50,0002" Building 1,200,000~ L37N Accounts Payable 100,000 x ySalaries Payable 200,000 Income tax Payable 300,000 Loan Payable 400,000" | Mortgage payable 500,000) Contributed capital 800,000 Deficit (300,000) Liquidation expenses amounting to P600,000 were paid. The loan payable is secured by the machinery with fair value of P300,000. The mortgage payable is secured by the fair value of the building. At the end of liquidation, the holder of loan payable received P340,000. Req. 1; What is the amount received by the holder of accounts payable at the end of liquidation? a. P85,000 b. P15,000 Req. liquidation? 80,000 40,000 Answer 1) B 2)B Suggested Solution: Req. 1 Settlement of Loan payable Machine Pledged to Loan Payable Cash paid to unsecured portion Loan Payable Machine pledged to loan payable Unsecured Portion of Loan Payable Cash paid to unsecured portion + Unsecured portion of Loan payable Expected Recovery % cc. P40,000 d. P60,000 : What is the amount of net free assets available at the end of c. P120,000 d. P200,000 340,000“ 300,000“ 40,000 — 400,000 300,000 40,000 _- +_100,000_~ 40% | Accounts Payable 100,000 x 40% = 40,000 Us iReq. 2 Accounts payable 100,000 Unsecured portion of loan payable 100,000 THA Total Unsecured Liabilities without Priority ~ 200,000 ®R: —— x expected Recovery % 40%" TL Net free assets 80,000. Problem 2: Extinct Corporation provided the following balances in March 1, 20x5: Cash 161,500 Accounts payable 80,000 Accounts receivable 30,000 Wages payable 25,000 Inventories 85,000 Tax payable 15,000 Notes receivable 60,000 —_Note payable 80,000 Equipment 42,000 Mortgage payable 150,000 Furniture 26,000 Share capital 150,000 Machinery 40,000 ~ Deficit 55,500) Total 444,500 Total 444,500 In the statement of realization and liquidation the following data are ascertained for the month of March: * Interests not accrued for the month were for the notes receivable P4,000, for the notes payable P8,000 and for the mortgage payable P15,000. = The mortgage payable together with its respective interests was paid. + 1/3 of the existing accounts receivable at the beginning of the month was collected at P8,000 and the balance to be collected next month. + P40,000 of the total inventories were sold for P60,000 cash. + Only P36,000 was collected out of total amount of the notes receivable recorded as of March 1, included in the amount collected was the related interest on the notes. Furniture were sold for P17,000. Administrative expenses of P18,000 was paid. Wages Payable was paid. Additional credit sales (to be collected next month) amounting to P54,000 were made for the remaining inventories * All non-cash assets not mentioned above will be sold or collected next month. Req. 1: What is the estate equity at the end of March? | (a) P47,000 c. P47,500 b. P102,500 d. P103,000 Req. 2: What is the total liabilities liquidated? a. P373,000 c. P350,000 b. P190,000 d. P165,000Qnporate Liguidation 120 Req. 3: What is the total amount of assets to be realized in the Statement of Realization and Liquidation at the beginning of April? a. P166,000 ©. P176,500 b. P121,000 d. P230,500 Answer 1) C 2)B 3) B Suggested Solution Req. 1 Estate Equity Beg. [150,000 - 55,500] 94,500 Net Loss (47,000) Estate Equity, end 47,500 Req. 28 3: Gain/Loss Assets to be realized Assets realized Accounts Receivable 30,000 | 8,000 (1/3) of AR Inventories 85,000 |60,000 Inventory Notes Receivable 60,000 |36,000 _ Notes Receivable + Interest Equipment 42,000 |17,000 Furniture Furniture 26,000 Machinery 40,000 Assets acquired Assets not realized Interest on Notes Receivable 4,000 20,000 (2/3)of AR Accts Receivable [credit sales] 54,000 /42,000 ~ Equipment 40,000 Machinery 54,000 Accts. Receivable [credit sales} Liabilities Liquidated Liabilities to be liquidated Mortgage payable 150,000 }80,000 Accounts Payable Interest on Mortgage payable 15,000 [25,000 Wages payable Wages payable 25,000 |15,000 Tax payable 80,000 Notes payable 150,000 Mortgage payable Liabilities not liquidated Liabilities assumed Accounts payable 80,000 |15,000 Interest on Mortgage Payable Tax payable 15,000 | 8,000 _Interest on Notes payable Notes payable 80,000 Interest on Notes payable 8,000 Supplementary charges Supplementary credits Interest on Mortgage Payable 15,000 | 4,000 _ Interest on Notes Receivable Interest on Notes payable 8,000 |54,000 Sales on Account Administrative exp. 18,000 755,000 {708,000 Net Loss 47,000; at000!Corporate Liquidation 121 Alternative Computation STATEMENT OF REALIZATION AND LIQUIDATION Book Cash Gain Assets Value Receipts (Loss) Accounts Receivable - 1/3 10,000 8,000 (2,000) Inventories 40,000 60,000 20,000 Notes Receivable + Interest on NR 100,000 36,000 (64,000 Furniture 26,000 17,000 (9,000) Book Cash Liabilities Value Payment Wages payable 25,000 25,000 Mortgage payable 150,000 150,000 ‘ Interest on Mortgage ‘ 15,000 15,000 - Revenue and Expenses Interest on NR 40,000 Interest on Notes payable (8,000) Interest on Mortgage payable (15,000) Administrative expense (18,000) Sales on Account [54,000 - 45,000 COGS] 9,000 Net loss on Realization and Liquidation Problem 3: ENRON Company located at the center of the business district where rapid technological changes occur, experienced financial difficulties due to economic downturns and litigation losses resulting to its insolvency. Because of its inability to meet obligations as they come due the court accepted the petition and granted an order for relief. Paul Corp., trustee, was appointed by the court regarding the administration of the estate of ENRON and is to prepare a preliminary report. Presented below is its Statement of Financial Position before the start of liquidation: Cash P4,050,000 Notes Payable P750,000 Equipment — 3,750,000 Wages Payable 2,250,000 Building 7,200,000 Income tax Payable 1,500,000 Loan Payable 3,000,000 Mortgage payable 3,750,000 Contributed capital 6,000,000 Deficit (2,250,000) It is expected that administrative expenses amounting to P400,000 will be paid. The loan payable is secured by the Machinery & Equipment which is estimated to be sold at P2,250,000. The mortgage payable is fully secured by the estimated realizable value of the Building. At the end of liquidation, the estimated percentage settlement to the partially secured creditor is 92%.= Qnporate Ligaidating 2 Req. 1: What is the amount of the total free assets? c. P1,020,000 c. P4,050,000 d. — P5,170,000 d. P7,500,000 Req. 2: What is the estimated gain/(loss) on the realization of the buildings a. (3,830,000) c. P380,000 8 b. (6,080,000) d. (1,500,000) Req. 3: What is the estimated payment to all liabilities? a. P11,170,000 . P15,000,000 d. P8,920,000 b. P7,420,000 Answer 1) B 2) A 3) A Suggested Solution Req. 1 Partially secured Loan Payable 3,000,000 x estimated % for settlement of partially secured 92% Total Recovery of partially secured loan payable 2,760,000 Equipment pledged - at est. realizable value 2,250,000 Recovery of unsecured portion of loan payable 510,000 + Unsecured portion of loan payable 750,000 Expected recovery % of unsecured liabilities w/ priority 68% Partially secured Loan Payable 3,000,000 Equipment pledged - at est. realizable value 2,250,000. Unsecured Portion of loan payable 750,000 Notes payable 750,000 Total Unsecured Liab. w/o priorities 1,500,000 68% x Expected recovery % of unsecured liab. w/o priorities Net Free Assets Add: Unsecured with priorities 1,020,000 Administrative expense 400,000 Wages payable 2,250,000 Income tax payable 1,500,000 Total Free Assets 5,170,000 Req. 2 Total Free Assets 5,170,000 Less: Cash 4,050,000 Free Assets on Building Pledged 1,120,000 ‘Add: Mortgage payable , 3,750,000 Estimated realizable Value of Building ~4'870,000_ éf aw /Corporate Liguidation 123 Book Est. Realizable Value value Gain (Loss) Equipment 3,750,000 2,250,000 (1,500,000) Building 7,200,000 4,870,000 _ (2,330,000 Total Gain (Loss) on Realization 3,830,000 Est. Realizable value Equipment 2,250,000 Building 4,870,000, Cash 4,050,000 Total estimated payment to all liabilities 11,170,000 Note: If total liabilities will be greater than the total estimated realizable value of assets. The entire estimated realizable value of assets will be paid only to the total liabilities. Problem 4: Lim Corporation is to be liquidated and has the following liabilities: Income taxes P 40,000 Notes payable (secured by land) 600,000 Accounts payable 415,000 Salary payable 30,000 Bonds payable 350,000 Administrative expenses for liquidation 100,000 The corporation has the following assets: Book Value Fair Value Current assets 400,000 165,000 Land 500,000 450,000 Building and equipment 500,000 550,000 How much will be paid on the notes payable? a, P540,000 c. P450,000 b. P415,000 d. P600,000 Answer A Suggested Solution: * FA 165,000 + 550,000 = Total FA 715,000 - With Priority 170,000 (40,000 + 30,000+ 100,000) =NFA 545,000 * PS (600,000 - 450,000) = 150,000 + 415,000 + 350,000 = 915,000 UL * Expected recovery percentage = 545,000/915,000 = 60% * PS 150,000 x 60% = 90,000 + 450,000 assets pledged = 540,000Corporate Liquidation 124 Problem 5: The Rodriguez Corporation is undergoing liquidation and has the following condensed Statement of Financial Position as of December 1, 2011: Liabilities and Equity Assets Cash 1,998,500 Salaries Payable 875,000 Receivables 5,964,000 Accounts Payable 1,898,750 Merchandise 1,400,000 Bonds Payable 7,000,000 Prepaid Expenses 43,750 Bank Loan Payable 3,850,000 Building (net) 6,037,500 Note Payable 1,400,000 Goodwill 962,500 _ Ordinary shares 2,100,000 Total Assets 16,406,250 Deficit = Total Liabilities and Equity _17,123,750 P6, 300,000. ‘The bonds payable are secured by the building having a realizable value of Of the accounts payable, P1,050,000 is secured by 1/4 of the receivable which is estimated to be 20% uncollectible. The remainder in the book value of the receivables which has a realizable value of P4,112,500 is used to secure the bank loan payable. taxes P52,500. The merchandise has a realizable value of P927,500. In addition to the recorded liabilities are accrued interest on bonds payable amounting to P70,000 and trustees expenses amounting to P43,750 and Compute for the settlement to fully secured creditors, partially secured creditors and unsecured creditors without priority. Fully Secured Partially Secured Without Priority a. 4,900,000 5,527,320 2,360,070 b. P4,900,000 P6,901,990 P1,758,070 c, 5,042,800 6,901,990 2,360,070 d P5,042,800 P5,527,320 P1,758,070 Answer B Suggested Solution: ra ULB Non- Priority Bi bl Fully Secured: AR (1,192,800 - 1,050T) 142,800 770,000 +7000 00 70,000 - 6,300,000) AR (4,112,500 - 3,850,000) 262,500 848,759 «Accounts Payable © i aan eo (1,898,750 - 1,050,000) lerchandise 500 1,400,000 Note Payable Prepaid expenses - Goodwill : Cash 1,998,500 EX Total Free Assets 331,300 _3,018,750_ Total w/out priority oy,Unsecured with priority: Trustee expenses 43,750 Taxes 52,500 Salaries payable 875,000 NFA 2,360,050 Less: Total unsecured without priority __3,018,750 Estimated Deficiency 658,700 Net Free Assets Divide by Total Unsecured liabilities without Priority Expected Recovery Percentage Fully Secured ‘Accounts Payable secured by accounts receivable Bank Loan Payable Total x Percentage of recovery Total Recovery Partially secured liabilities Bonds Payable 7,000,000 Add: Accrued Interest on Bond Payable 70,000 Less: Building 6,300,000. Balance 770,000 Total Recovery Without Priority Accounts Payable 848,750 Notes Payable 1,400,000 Total 2,248,750 x Expected Recovery % 78% Total Recovery 1,758,070 Coperte Liguiatin 125 2,360,050 ~3018,750_ 78.18% 1,050,000 3,850,000 4,900,000 100% 4,900,000 x 100% 6,300,000 78.18% __ 601,990 6,901,990 Problem 6: The following data are provided by Chummy Corporation which is undergoing liquidation process: i, Total liabilities amounts to P692,000. 35% is fully secured by assets amounting to P270,000 with fair market value of P250,000; 40% is partially secured by assets amounting to P300,000 with realizable value of P225,000; and the remaining balance is unsecured. ii, Total assets amounts to P890,000 and has a total fair market value P695,000. ili. Unpaid income taxes amounts to P35,000. Additional salaries payable and administrative expenses totaled P28,000. iv. Deficit amounts to P79,000. Which of the following statements is correct?Corporate Liguidation 126 Assets available to all unsecured creditors with and without priority are 227,800 ‘The amount paid to partially secured creditors is P225,000 The estate deficit amount to P60,000 The amount paid to all secured creditors is P695,000 Answer A Suggested Solution: 2 e UL & Non- FA Priority Partially Secured 7,800 51,800 _ (276,800 - 225,000) Other liabilities 173,000 (25% x 692,000) Fully Secured (250,000 - 242,200) Other Assets: (695,000 - 250,000 - 225,000) 220,000 Total unsecured Total Free Assets 227,800 224,800 __ without priority Unsecured with priority: Taxes (35,000) Salaries payable / Adm. (28,000) 164,800 Net Free Assets Less: Total unsecured w/o priority _224,800 Estimated Deficiency 60,000 Choice B is wrong, it should be 262,969 Paid to partially secured creditors (51,800 x 73.30%) 37,969 Assets pledged 225,000 Total payment 262,969 Choice C is wrong, it should be estimated deficiency of 60,000 Choice D is wrong, it should be paid to all secured and unsecured creditors Problem 7: Aduana Corporation has the following information in the statement of realization and liquidation for the month of July: Assets to be realized 406,500 Assets realized 485,600 Liabilities to be paid 380,000 Liabilities paid 290,000yee Corporate Ligatdation 127 only transactions ascertained for the month of July are credit sales The 00 and payment of accrued interest payable. All noncash assets are sold Fad collected during the month, ore, a cash balance of P10,000 is presented in the statement of Far al position of RWB Corporation at July 1, 2016. The estate equity at July is P97,600. at, 20 ris the interest expense for the month of July? How 73,000 c. P18,000 a 87,100 d. P56,000 ‘Answer C sted Solution: pace? Gain (loss Assets to be realized 406,500 | 485,600 Assets Realized ‘assets acquired 38,000 | - Assets not realized Liabilities liquidated 290,000 | 380,000 Liabilities to be liquidated Liabilities not liquidated 90,000 - Liabilities assumed Jementary charges / fnverest) 18,000 | 38,000 _ Supplementary Credits 61,100 Gain on realization and lig. Assets to be realized 406,500 Cash beginning 10,000 Total assets 416,500 Less: Total liabilities 380,000 Total SHE, beginning 36,500 Total SHE, end (estate equity) 97,600 Gain on realization and liquidation 61,100 Problem 8: The following information is related to Gutierrez 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 accounts payable, P55,000 is secured by equipment with a 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.Corporate Liguidation 128 4. 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. i Cash available prior to liquidation amounts to P11,900. Total assets of Gutierrez Corp. presented in the statement of financial position prior to liquidation amounts to P480,000, except for prepaid expenses and goodwill amounting to P7,600 and P22,000, respectively, remaining assets other than those whose realizable values were mentioned above have a realizable value of 60% of the recorded amount. Total liabilities of Gutierrez Corp. presented in the statement of financial position prior to liquidation amounts to P380,000. Compute for the estimated deficiency to unsecured liabilities. a. P51,696 cc, P67,520 b. P120,020 d. P108,120 Answer D ‘Suggested Solution: ra UL& Non- Priority Inventory (82,000 - 73,600 BP - 5,300 1,240 Accounts Payable Interest 3,100) (55,000 - Eatin £3,760) i 99,0 140, Accounts Payabl Building 100 600: feces ae Cash 11,900 110,800 Other recorded liab. Other Assets 65,820 Total Free Assets 182,020 __252,640 Unsecured with priority: (37,500) NFA 144,520 Less: Total unsecured without priority 252,640 Estimated Deficiency 108,120 Unsecured with priority: Trustee expenses 8,500 Taxes 11,600 Salaries payable 17400 Total 37,500 ilities Other Recorded Liabilities Total liabilities prior to liquidation 380,000 195,600) ounts payable (195,600) ee 73,600) rable Bonds poy jed liabilities Other recorde 110.8007 Se ig eeConporate Ligeidatie 129 Other Assets Total assets 480,000 Merchandise (123,000) Equipment (76,800) Building : (129,000) Cash (11,900) Prepaid Expenses (7,600) Goodwill (22,000) Other assets 109,700 x Realizable value 60% Net Realizable Value of Other assets 65,820 Problem 9: The following data were taken from the statement of affairs of CORONA Corp: Stockholders’ equity 441,000 Bonds payable without security 735,000 Salaries 50,000 Loss on asset realization 551,250, ‘Accounts payable without security 367,500 Taxes 72,500 Trustee expenses 55,125 How much is the total free assets? a. P1,059,625 c, P992,250 b. P1,114,750 d. P953,575 Answer B Suggested Solution: Total Free Assets 1,114,750 Unsecured liabilities with priority (50,000 + 72,500 +55,125) Net Free Assets 937,125, Est. Deficiency (SHE 441,000 - Loss 551,250 - Trustee exp. 55,125) Total Unsecured and Non-priority claims (BP 735,000 + AP 367,300) 1,102,500 Problem 10: The statement of affair of WAWA indicates that unsecured creditors without priority with total claims of P3,600,000 may expect to recover P1,440,000 if all of the assets of WAWA were sold. Among the creditors of WAWA are the following:Corporate Liquidation 13 - Government (taxes payable of P2,000,000, inclusive of 400,000 assessments and surcharges. - ABC Bank (loan payable of P20,000,000 and accrued interest of P1,000,000 backed by collateral security with realizable value of P24,000,000). - XYZ Co (loan payable of P16,000,000 backed by collateral security with realizable value of P10,000,000). - Mr. Pogi (loan payable of P5,000,000 and accrued interest of P1,000,000. No collateral security. Reg. 1: How much is the expected recovery of partially secured creditors? a. PO c. P12,400,000 b. P6,400,000 d. P10,800,000 Req. 2: How much is the expected recovery of Mr. Pogi? a. PO c. P2,400,000 b. P3,900,000 d. P14,400,000 Answer 1) C2) C Suggested Solution: Expected Recovery % = NFA 1,440,000_ = 40% Unsecured Liability 3,600,000 Recovery Estimated Claims Percentage Recove! Government - unsecured with Priority_| 2,000,000 100% 2,000,0 ‘ABC Bank - Fully = secured 21,000,000 100% 21,000.01 XYZ Co. - Partially 10,000,000 secured 16,000,000 | + (40% x 6,000,000) | 12,400, on Mr. Pogi 6,000,000. ‘40% 2,400,0' Problem 11: BBB owns 80% of CCC. During the year CCC filed for bankruptcy and is about to enter into liquidation. BBB has an outstanding unsec A receivables of P4,000,000 from CCC together with an investment 1 7 subsidiary of P20,000,000. The statement of affairs of CCC shows 4 ! recovery for outside creditors and a 20% recovery for inside creditors. Req. 1: How much can BBB expect to recover from its receivable? a. P800,000 c. P640,000 b. P4,800,000 d. POCorporate Liguidation 131 Req. 2; How much can BBB expect to recover from its investment in idiary? 300,00 . P4,640,000 a. P20,000,000 b. P4,000,000 d. PO Answer 1) A 2) D Suggested Solution: Req. 1 4,000,000 x 20% = 800,000 2 pa 7 None will be paid to owners since the inside creditors are not paid in full. Problem 12: The following are the data before liquidating of XXX Corporation: Cash P 25,000 | Accounts Payable _| P325,000 ‘Short term investment 75,000 __| Capital stock 250,000 ‘Accounts Receivable 150,000 | Deficit (75,000) Taventory 250,000 Total assets 500,000 _ | Total 500,000 ‘transactions during liquidation that did not involve cash were as follows: Sales of merchandise on account 25,000 Purchase of merchandise on account 7,500 Cash receipts and disbursements Cash Receipts: Sale of merchandise P125,000 Collections of accounts re: 57,500 Sale of marketable securities 92,500 Interest on short term investment 750 Cash disbursement: * Payment of accounts 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Corporate Liguidation 137 Inventory beg P250,000 ‘Add: Inventory acquired 7,500 Less: Cost of goods sold 157,500 Inventory 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 P: 1,750 The net loss/ gain on realization and liquidation is: c. P36,000 loss d. P10,000 loss a. P15,000 gain b. P61,000 loss Answer C ‘Suggested Solution: Gain Loss Assets to be realized Short term investment 75,000 | 92,500 Accounts Receivable 150,000 | 57,500 Inventory 250,000 Assets Acquired AR 25,000 | 110,000 100,000 Liabilities Liquidated AP 175,000 | 325,000 Liabilities Liquidated AP 157,500} 7,500 Accrued expense 1,750 Supplementary charges Purchases 7,500 | 25,000 Payment of expenses 37,500 750 125,000 eee 843,250 | Assets Realized Short term investment Assets not realized AR Inventory Liabilities to be liquidated AP Liabilities Assumed AP Supplementary credits Sales on account Interest on short term investment Sales for cash eeCorporate Liguidation 133 problem 13: On October 31, 2009, Michael Inc.’s trustee prepares a Statement of Affairs with the following information: P 44,000 cash will be received by the unsecured creditors whose claims total P 80,000. + Raffy the janitor of the company has a claim of 1,500. Michael issued to Kyla a 12%, lyr note of P10,000 on January 1, 2009, nothing has been pledged to this note. « Jephte holds a note of P15,000 on which interest of 450 is accrued, equipment with book value of 14,000 has been pledged on this note. Present market value of the equipment is 16,500. Janzen received a 10% note of 12,000 from Michael on Feb.1, 2009, pledged with equipment with fair market value of 10,000. How much the creditors will receive? Kyla Jephte Janzen a 1,500 6,050 15,450 11,595 b. 1,500 10,000 15,000 12,000 c. 0 6,050 15,000 11,959 d 825 6,000 14,000 11,100 Answer A Suggested Solution: Expected Recovery % = 44,000 / 80,000 = 55% Rally - unsecured with priority 1,500 Kyla - Unsecured without priority Percentage of Recovery 100% _ Note 10,000 Total 1,500_ Interest (10,000 x12% x 10/12) __1,000 Total 11,000 Expected Recovery Percentage 55% Total 6,050 Jepthe - Fully Secured Jansen - Partially Secured Note 15,000 Note 12,000 Interest 450___ Interest (12K x 10% x 9/12) __900 Total 15,450 Total 12,900 Percentage of Recovery 100% _ Equipment 10,000. x100% 10,000 Total z Balance 2,900 x55% _1,595 11,595 Problem 14: Mara Clara Corp. has been undergoing liquidation since January 1, As of June 30, its condensed statement of realization and liquidation is Presented below:~ Corporate Liguidation 134 Assets realized 105,000 Interest on Investment 525 Purchases on account 5,250 ‘Assets Acquired 17,500 Liabilities assumed 5,250 [ Payment of expenses of trustee 26,250 Liabilities to be liquidated 227,500 Sales on Account 17,500 not realized 147,000 ies not liquidated 111,475, Sales for cash 87,500 332,500 122,500 ‘The net gain (loss) on realization and liquidation is: a. 61,250 c. (25,200) b. (61,250) d. 25,200 Answer C _Suagested Solution: ‘Assets to be realized 332,500 | 147,000 Assets not realized Assets Acquired 17,500 | 105,000 Assets realized liabilities not liquidated 111,475 | 227,500 Liabilities to be liquidated Liabilities liquidated 122,500} 5,250 liabilities assumed Payment of expenses of trustee 26,250 | 87,500 Sales for cash Purchases 5,250 | 17,500 Sales on Account 525__ Interest on Investment 615,475 | 590,275 Loss on realization and Liquidation _ 25,200 Problem 15: The following data were taken from the statement of realization and liquidation of Mendoza Corp. for the quarter ended September 30, 2031 Liabilities to be liquidated Supplementary charges Liabilities not liquidated Supplementary credits Assets acquired Liabilities liquidated Assets to be realized Assets realized Liabilities assumed 7 P 285,000 169,100 210,000 192,500 136,000 158,000 107,500 175,000 83,000Corporate kigatdation 135 ‘The beginning capital balances of ordinary shares and retained earnings are P102,000 and P29,600, respectively. A net income of P87,400 for the Period. How much is the beginning balance of cash? a. P293,000 c. 241,600 b. 209,100 d. 309,100 How much is the ending balance of cash? a, P293,000 c. P209,100 b. P296,500 d. P309,100 Answer 1) D 2) B Suggested Solution: Gain (loss) Assets to be realized 107,500 | 175,000 Assets Realized Assets acquired 136,000 | 132,500 Assets not realized _ Liabilities liquidated 158,000 | 285,000 « Liabilities to be liquidated Liabilities not liquidated 210,000 | 83,000 _Liabilities assumed Supplementary charges _169,100 | 192,500__ Supplementary Credits 87,400 Gain on realization and lig. Beginning Capital (102,000 + 29,600) - 131,600 Add: Liabilities to be liquidated 285,000 Less: Assets to be Realized 107,500 Beginning balance of cash Beginning Capital: Ordinary Share 102,000 Retained earnings 29,600 Total 131,600 Net income for the period 87,400 Total ending capital 219,000 Liabilities not liquidated 210,000 Total Assets, end 429,000 Less: Assets not realized 132,500 Ending Cash 296,500 Problem 16: The following data were taken from the statement of affairs for Revillame Corp.Corporate Liguidation 135 ‘Assets Pledged for fully secured liabilities (fair value P150,000) 180,000 Assets pledged to partially secured liabilities (fair values, P104,000) | 148,000 Free Assets (fair value, P80,000) 140,000 Unsecured liabilities with priority 14,000 Fully Secured liabilities 60,000 Partially secured liabilities 120,000 | Unsecured liabilities without priority 230,000 The total estimated deficiency to unsecured creditors and the expected recovery per peso of unsecured claims, a. P76,000 and .69 c. P90,000 and .65 b. P90,000 and .63 d. P74,000 and .68 Answer B 2 Suggested Solution: UL& FA Non- Priority Fully Secured (IS0T-60T) 90,000 16,000 _ Partially secured (120T -1047) Free assets 80,000 _230,000_ Unsecured without Total Free Assets 170,000 _246,000_ Total unsecured & non-priority claims Unsecured with priority 14,000) NFA 156,000 Net Free Assets 156,000 Less: Total unsecured without priority 246,000 Estimated Deficiency (90,000) Net Free Assets . 156,000 Divide by Total Unsecured liabilities without Priority _246,000_ Expected Recovery Percentage 63% Problem 17: The Lyn Corporation is undergoing liquidation and has the following condensed statement of financial position as of January 1, 2030: Assets Liabilities and SHE Cash 114,200 Salaries Payable 50,000 Receivables (net) 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 (4 1,000) 0 ad Total Liabilities and SHE ~ 937,500 Total AssetsCorporate Liquidation 137 ‘The mortgage payable is secured by the building having a realizable value of 360,000. Accounts payable amounting to P60,000 is secured by the receivables amounting to P85,200 which is collectible in the amount of 68,160. 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 the recorded liabilities are accrued interest on mortgage payable amounting to P4,000, liquidation expenses amounting to P9,500 and taxes amounting to 4,000, (Use two decimal places for the recovery percentage) 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 Answer D Suggested Solution: The total estimated loss on asset realization is P122,140 : Gain BV RV floss) Accounts receivable 85,200 68,160 (17,040) Accounts receivable (340,800 - 85,200) 255,600 235,000 (20,600) Building 345,000 360,000 15,000 Prepaid Expenses 2,500 - 2,500) Goodwill 55,000 - —_(85,000) Merchandise Inventory 80,000 53,000 _(27,000) Total estimated net loss on asset realization 107,140) UL& FA Non- Priority Accounts Receivable 8,160 44,000 Mortgage (68,160 - 60,000) (400,000 + Interest 4,000 - 360,000) Accounts Receivable 15,000 48,500 Accounts Payable (235,000 - 220,000) (108,500 - 60,000) Merchandise 53,000 80,000 _Notes Payable Cash 114,200 Prepaid expenses - Goodwill Total unsecured & non-priority Total Free Assets 190,360Corporate Liguidation 138 aes uw Unsecured with priority: Taxes (4,000) Wages (50,000) Liquidation expense (9,500) Net Free Assets 126,860 Less: Total unsecured& non- priority 172,500 Estimated Deficiency 45,640 Expected Recovery % = (126,860 / 172,500) 73.54% Partially Secured Liabi (44,000 x 73.54%) 32,358 Pledged assets 360,000 Total payment 392,358 Problem 18: Ended Corporation is undergoing liquidation. The trustee of Ended Corp. presents the following information: * 70,000 assets are available to total unsecured and non-priority claims, P10,000 of which represents Inventories. It was ascertained that inventories were not pledged to any liabilities. * Unpaid liabilities are as follows: administrative expenses: P3,500; taxes: P6,000 and wages: P2,500 * Accounts payable and notes payable totaled P100,000. No assets were pledged on the said liabilities. * Payment to fully secured creditors and partially secured creditors amounts to P68,000 and P135,000 respectively. If the recovery percentage is 35 percent, determine the amount of (1) Assets pledged to fully secured liabilities and (2) partially secured Habilities. a. (1) P150,000; (2) P100,000 b. (1) P150,000; (2) P200,000 c. (1) P140,000; (2) P200,000 d. (1) P140,000; (2) P100,000 Answer C ‘Suggested Solution Expected Recovery Percentage 35% Total Unsecured & non-priority claims = 200,000Copoate Lipuidation 139 Total Unsecured and Non-Priority Claims 200,000 Less: Accounts and Notes Payable 100,000 Excess of Partially Secured Liabilities {00,0007 Net Free Assets 70,000 ‘Add: With Priority Claims 12,000 Total Free Assets 82.000 Less: Assets not Pledged to any liability 10,000 Excess Of Assets Pledged to Fully Secured Creditor 72,000 ‘Add: Payment to Fully Secured Creditors 68,000 Assets Pideged to Fully Secured Liability 140,000 Payment to Partially Secured Liabilities 135,000 Less: Payment to Excess of Partially secured Liab. (100,000 x 35%) 35,000 Asset Plaged to Partially Secured Liability 00,0007 ‘Add: Excess of partially Secured Liability 100,000 Total Partially Secured Liability 200,000 Problem 19: Based on the following data taken from the statement of affairs of FAST 5 Corp: ‘Assets pledged to fully secured liabilities (Fair value P375,000) 450,000 Assets pledged for partially secured liabilities (Fair value P260,000) | 370,000 Free assets (current fair value P200,000) 350,000 Unsecured liabilities with priority 35,000 Fully secured liabilities 150,000, Partially secured liabilities 300,000 Unsecured liabilities without priority 560,000 The amount to be paid to partially secured creditors is a. P285,000 c. P286,000 b. P263,500 d. P281,000 Answer C Suggested Solution: Asset Pledged to fully secured liab. (375,000 - 150,000) 225,000 Other Free Assets 200,000 Total Free Assets Unsecured with priority Net Free Assetset ahh Corporate Leguidation 14) Unsecured & Non: Assets Pledged to partially secured liab. ((300,000 -260,000) Unsecured liabilities without priority Total Unsecured and Non-priority claims 600,000~ Estimated Recovery % = 390,000 / 600,000 = 65% Partially Secured Liabilities: Pledged assets 260,000 Unsecured Portion (40,000 x 65%) 26,000 Total recovery 286,000 Problem 20: The following information was available on March 31, 2020 for ABC Corp, which cannot pay their liabilities when they are due: Cash z 96,000 Trade accounts receivable (net) fair value equal to carrying amount —_1, 104,000 Inventories : NRV 432,000 pledged on P504,000 note payable 936,000 Plant assets: Fair value P1,617,600 pledged on mortgage payable 3,216,000 Accumulated depreciation of plant assets 648,000 Supplies: fair value P36,000 48,000 Wages payable 139,200 Taxes payable 28,800 Trade accounts payable 1,440,000 Notes payable, PPS04,000 secured by inventories 960,000 Mortgage payable, including interest of 9,600 1,209,600 Ordinary share 2,400,000 Deficit 1,425,600 How much is the estimated loss on realization of assets? a. P1,466,400 c. P504,000 b. P950,400 . PO Answer A Suggested Solution: Book Value NRV Loss Inventories 936,000 432,000 (504,000) Plant Assets 2,568,000 1,617,600 (950,400) Supplies 48,000" 36,000 12,000) Estimated loss on realization 17,466,400)Corporate Liguidation 141 Problem 21: A Statement of realization and liquidation has been prepared for the I Love You Corporation. The totals are as follows: Assets to be realized 60,000 Assets acquired 40,000 Assets realized 55,000 Liabilities to be liquidated 80,000 liabilities assumed 50,000 Liabilities not liquidated 65,000 Supplementary credits 110,000 Retained earnings decrease by P12,000. The ending balances of capital stock and retained earnings are P100,000 and (P85,000), respectively. How much was the beginning balance of cash? a. P47,000 c. P35,000 b. P20,000 d. Not given Answer A Suggested Solution: Beginning balance of capital Retained earnings beg. (-85,000 + 12,000) (73,000) Common Stock 100,000 Total capital 27,000 Add: Beg. Total Liabilities (liabilities not liquidated) 80,000 Total Assets 107,000 Less: Total Non-cash assets (Assets to be realized) 60,000 Total Beginning cash 47,000 Problem 22: A review of the’ assets and liabilities of Atlantis Corporation in bankruptcy on Nov. 30, 2013, discloses the following: «A mortgage payable of P77,000, is secured by building valued at P14,000 niore than its book value of P68,000 * Notes payable of P39,000 is secured by furniture and equipment with book value of P46,000 that is estimated to be 4/5 realizable. * Assets other than those referred to have estimated value of P25,000, an amount that is P6,000 above its book value * Liabilities other than those referred to total P31,000, which excluded claims with priority of P8,000 Which of the following statements is true? 8 Actual recovery percentage is 66.27% b. Total free assets is P22,000 © Estimated deficiency to unsecured creditors is P1 1,200 4. Payment to partially secured creditors amount to 36,800ae os Corporate Liguidation 147 Answer C Suggested Solution: UL& Non- Free Priority Assets Claims Partially Sec. (NP 30,000 - Equip Fully Secured (Bldg. 82K - MP 77K) 5,000 2,200 36,800) Other Assets not pledge 25,000 __31,000__ Unsecured liabilities Total Unsecured & Total Free Assets 30,000 33,200 _Non-Priority Claims Less: Unsecured with priority 8,000 Net Free Assets 22,000 Estimated Deficiency = P22,000 - P33,200 = P11,200 Choice A is wrong, it should be expected recovery percentage not actual recovery percentage. Choice B is wrong, it should be P30,000 total free assets. Choice D is wrong, it should be P38,258 = 36,,800 + (2,200 x 66.27%). Problem 23: BBB has filed a petition for insolvency. The winding up of BBB Co.’s affairs will be entrusted to a receiver. The following information was gathered: BV Realizable value Assets 1,200,000 1,000,000 Liabilities Unsecured liabilities with priority 80,000 80,000 Fully secured creditors 480,000 480,000 Partially secured creditors 160,000 160,000 Unsecured liabilities without priorities 560,000 560,000 Total 1,280,000 1,280,000 Unrecorded items: Dividend receivables 20,000 Interest payable . 8,000 Estimated administrative expenses 40,000 Req. 1: How much is the estate equity (deficit) in the opening journal entry made by the receiver in its books? a. (108,000) c. (308,000) b. (80,000) d. (68,000) Req. 2: How much is the estimated deficiency to unsecured creditors without priority in the statr. ‘of affairs? LyCorporate Liquidation 143 a. (308,000) cc. (68,000) b. (80,000) d. (108,000) Answer 1) B 2) A Suggested Solution: Req. 1 BV of assets 1,200,000 — BV of liabilities 1,280,000 = (80,000) Req. 2 Assets at realizable value 1,000,000 Liab. at realizable value Dividend receivable 20,000_ Interest payable Total assets at realizable value — 1,020,000 Estimated Admin expenses Total Liab. at realizable value Total assets at realizable value 1,020,000 Total Liabilities at realizable value _ 1,328,000 Estimated deficiency (308,000) Problem 24: Kawawa Inc. is experiencing financial problems which resulted to ultimate bankruptcy. The statement of financial position of the entity before liquidation is presented below: Cash , 200,000 Income tax payable 400,000 Inventory 600,000 Salaries payable 600,000 Land 400,000 Note payable 1,600,000 Mortgage payable 200,000 Accounts payable 800,000 Contributed capital 1,000,000 Deficit (3,400,000) * The note payable is secured by the inventory with net realizable value of P500,000. * The mortgage payable is secured by the land with fair value of P240,000. Req. 1: What is the amount received by the holder of the note payable at the end of corporate liquidation? & 640,000 c. 500,000 5. 600,000 d. 520,000 Req. 2: What is the amount received by the holder of the mortgage payable at the end of corporate liquidation? ‘a. 240,000 c. 300,000 ». 400,000 d. 200,000Corporate Liguidation 144 Reg. 3: What is the amount received by the employees at the end of corporate liquidation concerning their salaries? a. 200,000 ©. 144,000 b. 240,000 d. 600,000 Answer 1) C2) D3) B Suggested Solution: The total free assets amounting to P240,000 is insufficient to cover the entire unsecured liabilities with priority claims amounting to P1,000,000 (400,000 + 600,000). Therefore, the partially secured creditor will only receive the amount that was pledged to them. Req, 1: Note Payable ~ partially secured: Pledged asset is inventory with net realizable value of P500,000. Req. 2: Mortgage Payable ~ fully secured: Pledged asset is land with fair value of 240,000. Therefore, the liability is recoverable. Req. 3: Employees ~ Unsecured with priority — the entire free assets of ‘240,000 will be distributed to the employees. Problem 25: The statement affairs of RAM Corp. has the following data: Unsecured liabilities without priority _ [90,000 Unsecured liabilities with priority 60,000 Fully secured liabilities 80,000 Partially secured liabilities 50,000 Assets pledged to partially secured liabilities 40,000 Assets pledged to fully secured liabilities 100,000 - Free Assets 120,000, How much is the estimated recovery percentage of partially secured creditors? a. 90% c. 80% b. 96% 4. 87.5% Answer B Suggested Solution UL & Non- FA priority Claims FS (80,000 - 100,000) 20,000 10,000 PS (50,000 - 40,000) _ Free Assets 120,000 90,000 Unsecured w/out priority Total Free Assets 140,000 100,000 Less: With Priority 60,000 Net Free Assets 80,000 hemeCorporate Liguidation 45 Expected Recover % of unsecured creditors = 80,000 / 100,000 = 80% Partially Secured: Pledged assets 40,000 Add: Unsecured portion (10,000 x 80%) 8,000 ‘Total Recovery of partially secured liabilities ___ 48,000 ‘Total Recover of Partially Secured Liab. = 48,000 = 96% Total Partially Secured liab. 50,000 Problem 26: The following data were taken from the statement of realization and liquidation of XYZ Corp. for the quarter ended Sept. 30, 2029: Assets to be realized P103,125 Liabilities not liquidated 140,625, Supplementary credits 159,375 Liabilities to be liquidated 168,750 Supplementary charges 146,250 Liabilities liquidated 112,500 Assets acquired 112,500 Assets realized 131,250 Liabilities assumed 56,250 Assets not realized 46,875, The ending capital balances of capital stock and retained earnings are P93,750 and P37,500, respectively. What is the net income (loss) for the period? How much is the ending balance of cash? a. P52,500; P225,000 c. (P52,500}; 225,000 b. (P65,000); P175,000 d, P13,125; P175,000 Answer C Suggested Solution: Gain (loss) Assets to be realized 103,125 | 131,250 Assets Realized Assets acquired 112,500 | 46,875 Assets not realized Liabilities liquidated 112,500 | 168,750 _ Liabilities to be liquidated Liabilities not liquidated 140,625 | 56,250 Liabilities assumed Supplementary charges 146,250 | 159,375 Supplementary Credits Loss on realization and lig. 52,500Corporate Liguidation 146 Capital end (93,750 + 37,500) 131,250 Liabilities end (Not liquidated) 140,625 Total Assets end 271,875 46,875, Less: Non-Cash end (not realized) Cash ending balance 225,000 Problem 27: Kitty Corp. is insolvent and its statement of affairs shows the following information: Estimated gains on realization of assets _—_1,440,000 Estimated losses on realization of assets 2,000,000 Additional assets 1,280,000 Additional liabilities 960,000 Ordinary share 2,000,000 Deficit 1,200,000 The estimated amount to be recovered by shareholders is: a. PO.57 c. PO.70 b. PO0.30 d. P0.43 Answer C Suggested Solution Additional assets 1,280,000 ‘Add: Estimated gains on realization of assets 1,440,000 Total . 2,720,000 Less: Estimated losses on realization of assets 2,000,000 Estimated net gain in assets realization 720,000 Less: Additional Liabilities - __960,000 Estimated net gain (loss) (240,000) Add: SHE (2,000,000 - 1,200,000) 800,000 Estimated amount to be recovered by Shareholders . __560,000 s Estimated Amount to be Recovered by Shareholders _= P560,000_ = PO.70 P800,000 Total Shareholders’ Equity Problem 28: The accountant of Salome Company prepared a statement of affairs. Assets which have no claims or liens are expected to produce P700,000. Unsecured claims of all classes totaled 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 creditor A. 3. A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by creditor B.Corporate Liguidation 147 4, A.P15,000 note on which P300 interest has accrued held by creditor C. Property with a book value of P10,000 and a market value of P18,000 is pledged. 5, Unpaid income taxes of P35,000. What is the amount realized by partially secured creditors? a. P27,900 c. P24,900 pb. P10,600 d. P19,500 Answer A suggested Solution: pe Assets 700,000 Less: Unsecured with priority (15,000 + 35,000) 50,000 Net Free Assets 650,000 Total Unsecured Liabilities : 1,050,000 Less: Accrued Salaries 15,000 Unpaid income tax 35,000 Total Unsecured Liabilities & Non-priority claims _ 1,000,000 Expected recovery percentage = 650,000 / 1,000,000 = 65% Note payable to B Pledge receivable 40,000 x 60% - "24,000 Unsecured Portion (30,000 - 24,000 = 6,000 x 65%) 3,900 Total Amount Realized 27,900 Problem 29: Nalugi Corp has been forced to file petition of insolvency because of its inability to pay its debts on April 1, 2030. The balance sheet on the date follows: Assets Liabilities & SHE Cash 2,700 Accounts payable 52,500 Accounts Receivable 39,350 Notes payable - bank 15,000 Notes Receivable 18,500 Notes payable -supplier 51,250 Merchandise inventory 87,850 Accrued wages 1,850 Prepaid insurance 950 Accrued taxes 4,650 Land and building 61,250 Mortgage bonds payable 90,000 Equipment 48,800 Ordinary share-P100 par 75,000 Total Retained Earnings (30,850) 259,400 259,400 Additional information: * Accounts receivable of P16,950 and notes receivable of P12,500 are expected to be collectible. The goods notes are pledged to the bank.Corporate Liguidation 14g + Merchandise inventory are expected to bring in P45,100 when sold under bankruptcy conditions + Land and building have appraised value of P95,000, they serve as security on the bonds + The current value of the equipment, net of disposal cost is P9,000. The expected recovery percentage for unsecured liabilities without priority is: a. 40% c. 68% b. 50% d. 65% t Answer C Suggested Solution UL without FA priority Cash 2,700 NP-bank 15,000-NR 12,500 2,500 Accounts Receivable 16,950 Accounts payable 52,500 Merchandise inventory 45,100 Notes payable -supplier 51,250 Land &Building 95,000 - Bonds # Payable 90,000 5,000 Equipment 9,000 Prepaid insurance s Total Free Assets 78,750 Less: With priority: Accrued wages. 1,850 Accrued taxes, 4,650 Net Free Assets 72,250 Total Unsecured w/o priority 106,250 NFA 72,250/UL without Priority 106,250 = 68% Problem 30: BP! loaned P8,000,000 to EPI Corp. The loan is secured by land with a book value of 10,000,000 and a fair value of P6, 000,000. What amount will the bank received if the unsect d : : ir claims? ured creditors received a 25% of their claims a P5,000,000 c. P10,000,000 . P6,500,000 4. P8,000,000 Answer B Suggested Solution Pledged asset (land at fair value) f f 6,000,000 Add: Unsecured portion (2,000,000 X 25%) 500, 000 Amount received by the BPI 6,500,000 Problem 31: The total f i i the following excepts" °°S*** in the statement of affairs will be available t0 a. Fully secured creditors itors with priori b. Partially secured creditors 4d Unateuted creditors with priority 4. Unsecured creditors without priori’Corporate Liutdation 149 Problem 32: The total net free assets will be distributed to the following: I. Unsecured creditors without priority Il. Unsecured creditors with priority” II. Fully secured creditors IV. Partially secured creditors - a. land Il only b. Iland IV only c. I, Hand IV only d, All of the above Problem 33: In a statement of affairs, assets pledged for partially secured creditors are: a. Included with assets pledged for fully secured creditors b. Offset against partially secured liabilities c. Included with free assets d. Disregarded Problem 34: The accounting records of a trustee in a bankruptey liquidation are maintained: a. Under the accrual method b. Under an accountability technique c. Under the cash method d. In.accordance with court order Problem 35: The estimated amount available for free assets in a statement of affairs for business enterprise undergoing bankruptcy: liquidation is equal to the assets: _a.) Carrying amount less current fair values b. Carrying amount plus gain or less loss on realization c. Carrying amount plus loss or less gain on realization d. Current fair value less carrying amounts Problem 36: Which of the following unsecured liabilities with priorities will be first settled by the debtor corporation? a. Liquidation expense c. Taxes . b. Salaries and wages d. None of the choice: Problem 37: A corporation that is unable to pay its debts as it becomes due is: a. Insolvent. c. Bankrupt b. Overdrawn d. Liquidating Problem 38: On the statement of affairs, the liabilities are classified? a Current and non-current liabilities ». Unsecured liabilities with priority and Unsecured without priority ©. Monetary and Nonmonetary liabilities 4. Secured and Unsecured liabilities Problem 39: The anticipated administrative expenses for liquidation shall be Classified on the statement of affairs as: