ACCOUNTING FOR SPECIAL TRANSACTIONS

CORPORATE LIQUIDATION
DRILL 1
The interim trustee developed the following information for Millsap Inc. as of September 15,2023,
four days after the company filed a petition.
Book values Estimated realizable values
Cash 40,000.00 40,000.00
Accounts receivable - net 105,000.00 80,000.00
Inventories 100,000.00 105,000.00
Equipment - net 75,000.00 30,000.00
Land 25,000.00 45,000.00
Buildings - net 100,000.00 25,000.00
Intangible assets 5,000.00
450,000.00 325,000.00

Accounts payable 200,000.00

Wages payable 12,000.00
Taxes payable 38,000.00
Notes payable 50,000.00
Mortgage payable 100,000.00
Interest payable on mortgage 2,500.00
Capital stock 150,000.00
Retained earnings (deficit) (102,500.00)
450,000.00
Additional information:
✓ The land and buildings are pledged as security for the mortgage payable and interest.
✓ The accounts receivable are pledged as security for the notes payable.
✓ Expenses of converting the assets into cash and liquidating the corporation are expected to
be P30,400.

Required:
• Compute for the expected recovery rate.
• Compute for the estimated amount payable to each class of creditor.

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DRILL 2
Foxit Co. filed a petition in January 1,2023. On March 1,2023, the trustee provided the following
information about the corporation’s financial affairs:
BV ERV
Cash 80,000.00 80,000.00
Accounts
receivable - net 210,000.00 160,000.00
Merchandise
Inventory 200,000.00 210,000.00
Equipment, net 150,000.00 60,000.00
Land and Building
- net 260,000.00 140,000.00
Total assets 900,000.00

Accounts payable 400,000.00

Wages payable 24,000.00
Taxes payable 76,000.00
Notes payable 100,000.00
Mortgage payable
and interest, P5,000 205,000.00
Capital stock 300,000.00
Retained earnings
(deficit) - 205,000.00
Total liabilities
and SHE 900,000.00
Additional information:
✓ Accounts receivable are pledged as security for the notes payable.
✓ Taxes payable are priority item.
✓ Mortgage payable and interest are secured by the land and buildings.
✓ Trustee fees and other costs of liquidating the estate are expected to be P11,000.

Required:
• Compute for estimated deficiency to unsecured creditors.
• Estimated recovery rate.

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DRILL 3
Nobela Corporation is undergoing liquidation since January 1,2023. Its condensed statement of
realization and liquidation as of June 30,2017 show:

Assets to be realized 1,575,000.00

Assets acquired 1,050,000.00
Assets realized 1,400,000.00
Assets not realized 1,225,000.00
Liabilities liquidated 2,875,000.00
Liabilities assumed 1,425,000.00
Liabilities to be liquidated 2,550,000.00
Liabilities not liquidated 1,100,000.00
Supplementary charges 3,125,000.00
Supplementary credits 3,850,000.00

The capital stock as of January 1,2018 amounted to P500,000 and Retained earnings (deficit) is
(P200,000).
Required:
• Compute for the cash balance as of January 1,2023.
• Compute for the net income (loss) for the period.
• Cash balance as of June 30,2023.

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