Accounting for Special Transactions

Corporate Liquidation
Assignment

Problem 1:

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 4,050,000.00
Equipment 3,750,000.00
Building 7,200,000.00
Notes Payable 750,000.00
Wages Payable 2,250,000.00
Income Tax Payable 1,500,000.00
Loan Payable 3,000,000.00
Mortgage Payable 3,750,000.00
Contributed Capital 6,000,000.00
Deficit - 2,250,000.00

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 yo the partially secured creditor is 92%

Requirements:
1. What is the amount of total free assets?
2. What is the estimated gain/(loss) on the realization of the building?
3. What is the estimated payment to all liabilities?

Problem 2:
Extinct Corporation provided the following balances in March 1, 20x5:

Cash 161,500.00
Accounts Receivable 30,000.00
Inventories 85,000.00
Notes Receivable 60,000.00
Equipment 42,000.00
Furniture 26,000.00
Machinery 40,000.00
Accounts Payable 80,000.00
Wages Payable 25,000.00
Tax Payable 15,000.00
Note Payable 80,000.00
Mortgage Payable 150,000.00
Share Capital 150,000.00
Deficit - 55,500.00

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.
- Furnitures 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

Requirements:
1. What is the estate equity at the end of March?
2. What is the total liabilities liquidated?
3. What is the total amount of assets to be realized in the Statement of Realization and
Liquidation at the beginning of April?

Problem 3:
Aduana Corporation has the following information in the statement of realization and liquidation
for the month of July:

Assets to be realized 406,500.00

Assets realized 485,600.00
Liabilities to be paid 380,000.00
Liabilities paid 290,000.00

The only transactions ascertained for the month of July are credit sales P38,000 and payment of
accrued interest payable. All noncash assets are sold an collected during the month.

Furthermore, a cash balance of P10,000 is presented in the statement of financial position of

Furthermore, a cash balance of P10,000 is presented in the statement of financial position of
RWB Corporation at July 1, 2016. The estate equity at July 31, 2016 is P97,600.

Requirements:
1. How much is the interest expense for the month of July?