PROBLEM 3: (1)

REQUIREMENT (A) : STATEMENT OF AFFAIRS

Book values Assets Realizable values

Assets pledged to fully secured creditors:
5,000,000.00 Land and building 5,200,000.00
Loan payable (4,000,000.00)
Interest payable (30,000.00)

Assets pledged to partially secured creditors:

600,000.00 Equipment, net 400,000.00

Free assets:
80,000.00 Cash 80,000.00
440,000.00 Accounts receivable 334,400.00
200,000.00 Notes receivable 200,000.00
- Interest receivable 20,000.00
1,060,000.00 Inventory 820,000.00
20,000.00 Prepaid assets -
Total free assets
Less: Unsecured liabilities with priority
Net free assets
Estimate deficiency (2,592,000-1,814,400)
7,400,000.00

Book values Liabilities and equity Realizable values

Unsecured liabilities with priority:
- Administrative expenses 60,000.00
50,000.00 Accrued salaries 50,000.00
700,000.00 Current tax payable 700,000.00
Total unsecured liabilities with priority 810,000.00

Fully secured creditors:

4,000,000.00 Loan payable 4,000,000.00
Interest payable 30,000.00

Partially secured creditors:

600,000.00 Notes payable 600,000.00
Equipment, net (400,000.00)

Unsecured creditors
392,000.00 Accruedd expenses, net of accrued salarie 392,000.00
2,000,000.00 Accounts payable 2,000,000.00
 Total unsecured creditors

(342,000.00) Shareholders Equity -

7,400,000.00

REQUIREMENT (B) :

Total assets @ realizable value 7,054,400.00

Total liabilities @ settlement amount (7,832,00)
Estimated dificiency (777,600.00)

REQUIREMENT (C) :

Estimated recovery percentage = 1,814,400/2,592,000

= 70%

REQUIREMENT (D) :

Mr. A's recovery from his claim = 500,000 x 70%

= 350,000

PROBLEM 3: (2)
REQUIREMENT: OPENING JOURNAL ENTRIES

CASH 80,000.00
ACCOUNTS RECEIVABLE 440,000.00
NOTES RECEIVABLE 200,000.00
INVENTORY 1,060,000.00
PREPAID EXPENSES 20,000.00
LAND 1,000,000.00
BUILDING 4,000,000.00
ESTATE DEFICIT (SQUEEZE) 342,000.00
ACCRUED EXPENSE 442,000.00
CURRENT TAX PAYABLE 700,000.00
Available for unsecured creditors

1,170,000.00

1,454,400.00
2,624,000.00
(810,000.00)
1,814,000.00
777,600.00
2,592,000.00

Unsecured non-priority liabilities

200,000.00

2,392,000.00
 2,592,000.00

-
2,592,000.00
 CASE 1
REQUIREMENT (A) :

Small's Books
a. Joint Operation 100,000
Cash 100,000

b. Joint Operation 120,000

Payment to Medium 120,000

c. Joint Operation 80,000

Payable to Large 80,000

d. No entry

e. Receivable from Large 900,000

Joint Operation 900.000

f. Joint Operation 240,000

Receivable from Large 240,00

REQUIREMENT (B) :

Profit after management fee and bonus Joint Operation

Mdse. Contribution 120,000 900,000 Sales

Purchases 180,000 60,000 Unsold Merchandise
Expenses 240,000
420,000 Profit before fee and bonus

Profit before management and bonus 420,000

Large's management fee (6,000)
Large Bonus (54,000)
Profit after managment fee and bonus 360,000

REQUIREMENT (C) :

Allocate the profit and loss

Small
Profit before salary and bonus
Allocation:
1. Salary
2. Bonus
3. Allocaion of remaining profit 120,000
As allocated 120,000

T-Accounts
Joint Operation- Small
Contibution 100,000
Profit/Loss 120,000
Receipt 220,000

Jointy Operation- Medium

Contribution 120,000
Profit/Loss. 120,000
Receipt 240,000

Joint Operation- Large

Contribution 80,000 60,000 Unsold inventories
Profit/Loss 180,00
Receipt 200,00

CASE 2
REQUIREMENT (a): Journal Entries

REQUIREMENT (b (b): Profit after management fee and bonus

 Sales
COGS:
Inventory,Beg.
Purchases & Freight-in
TGAS
Inv, End.
Gross Profit
Expenses
Profit before mgmt,fee & bonus

Profit before mgmt,fee & bonus

Larges's mgmt, fee
Larges's bonus
Profit after mgmt,fee & bonus

Requirement (c) Cash Settlement

Joint Operation - Small
Contribution 100,000
Profit / Loss 120,000
220,000

Joint Operation - Medium

Contribution 120,000
Profit / Loss 120,000
240,000

Joint Operation - Large

Contribution 80,000
Profit / Loss 180,000
200,000

P/L Small
Profit before salary and bonus
Allocation:
1. Salary
2. Bonus
3. Allocation of remaining profit
( 420,000 - 6,000 - 54,000 ) = 360,000 120,000
360,000 / 3
As Allocated 120,000
 Small, Capital

Medium, Capital

Large, Capital

60,000

3 . INVESTMENT IN JOINT VENTURE

Investment in Joint Venture

Initial Investment 220,000
Share in profit ( 800,000 * 40% ) 320,000
 Medium's Books Large's Books
Joint Operation 100,000 JO-Cash 100,000
Payable to Small 100,000 Payable to Small 100,000

Joint Operation 120,000 Joint Operation 120,000

Inventory 120,000 Payment to Medium 120,000

Joint Operation 80,000 JO-Cash 80,000

Payable to Large 80,000 Cash 80,000

No entry Joint Operation 180,000

JO-Cash 180,000

Receivable from Large 900,000 JO-Cash 900,000

Joint Operation 900,000 Joint Operation 900.000

Joint Operation 240,000 Joint Operation 240,000

Receivable from Large 240,000 JO-Cash 240,000

Medium Large

6,000
 54,000
120,000 120,000
120,000 180,000

Small's Books Medium's Book

Joint Operation 100,000
Cash 100,000
Joint Operation 120,000
Inventory 120,000
 900,000

120,000
180,000
300,000
-60,000 240,000
660,000
-240,000
420,000

420,000
-6,000
-54,000
360,000

Joint Operation - Small

Joint Operation - Medium

Joint Operation - Large

60,000 Unsold Inventory

Medium Large

6,000
54,000

120,000 120,000

120,000 180,000
 Small, Capital
100,000 (A)
120,000 P/L
220,000

Medium, Capital
120,000
120,000
240,000

Large, Capital
80,000
180,000
200,000

nvestment in Joint Venture

200,000 Dividends ( 500,000 * 40% )

340,000
Total
420,000

6,000
 54,000

420,000

Large's Books JO Books

Cash 100,000
Small, Capital 100,000
Inventory 120,000
Medium, Capital 120,000
Joint Operation 80,000 Cash 80,000
Cash 80,000 Large, Capital 80,000
Purchases 180,000
Cash 180,000
Cash 900,000
Sales 900,000
Expenses 240,000
Cash 240,000
 Total
420,000

6,000
54,000

360,000

420,000