1

CHAPTER 16
SUGGESTED ANSWERS
Exercise 16 - 1

Watson Co., Debtor

C. Gonzales, Trustee
Statement of Realization and Liquidation
For the Month Ended December 31, 200__

Assets

Assets to be realized: Assets realized:

Receivables, old P180,000 (2) Receivables, old P 92,500
Merchandise inventory, Dec. 1 200,000 (2) Receivables, new 2,250
Furniture and fixtures 75,000
Assets acquired: Assets not realized:
(3) Receivables, old 9,000 Receivables, old 84,250
Receivables, new 6,750
Merchandise inventory, Dec. 31 112,500
Furniture and fixtures 73,750

Liabilities

Liabilities not liquidated: Liabilities to be liquidated:

Accounts payable, old 275,000 Accounts payable 275,000

Revenues and Expenses

Supplementary charges: Supplementary credits:

(4) Purchases 3,750 (1) Sales for cash 120,000
(5) Expenses 7,000 (3) Sales on account 9,000
P749,750
Net gain 26,250
Total P776,000 Total P776,000

Cash
200___ 200__
Dec. 1 Balance P 60,000 Dec. 1-31 (4) Payments for
1-31 (1) Cash sales of merchandise
merchandise 120,000 purchased P 3,750
(2) Collections of (5) Payment of expenses 7,000
receivables 94,750 Dec. 31 Balance 264,000
P274,750 P274,750

200__
Jan. 1 Balance P264,000

Capital Stock
2000___
Dec. 1 Balance P250,000
Chapter 16 - Suggested Answers page 2

Retained Earnings
200____ 200____
Dec. 1 Balance P 10,000 Dec. 31 Net gain for December P26,250

Watson Co., Debtor

Balances per Statement of Realization and Liquidation
December 31, 200__

Assets Liabilities and Stockholders' Equity

Cash P264,000 Liabilities not liquidated P275,000
Assets not realized 277,250 Capital stock 250,000
_______ Retained earnings 16,250
Total liabilities and
Total assets P541,250 stockholders' equity P541,250

Exercise 16 -2

a. Dr. Accounts Receivable - "Assets acquired" 125,000

Cr. Sales - "Supplementary credits" 125,000

b. Dr. Cash - Cash Schedule 67,500

Cr. Accounts Receivable - "Assets realized" 67,500

No entry is needed for the accounts written off; the balance of accounts receivable of ___
is reduced by P2,500 and is entered in the "Assets to be realized" section.

c. Dr. Cash - Cash Schedule 82,000

Cr. Securities - "Assets realized" 82,000

d. Dr. Purchases - "Supplementary charges" 87,500

Cr. Accounts Payable - "Liabilities assumed" 87,500

e. Dr. Accrued Selling Expenses - "Liabilities liquidated" 4,000

Dr. Selling Expenses - "Supplementary charges" 19,750
Cr. Cash 23,750

f. No entry is needed for the depreciation; the balance of furniture and fixtures is reduced by
P1,375 and is entered in the "Assets to be realized" section.

g Dr. Truck - "Assets acquired" 11,000

Cr. Cash - "Cash schedule" 6,000
Cr. Truck - "Assets realized" 5,000

h. Dr. Accounts Payable - "Liabilities liquidated" 49,000

Cr. Cash - Cash Schedule 49,000
Chapter 16 - Suggested Answers page 3

Exercise 16-3
Liabilities
Unsecured
Assets Fully Partially With Without Owners'
Cash Noncash Secured Secured Priority Priority Equity
Beg. Balances 12,000 590,000 200,000 175,000 54,000 150,000 23,000

Sale of inventory 30,000 (25,000) (5,000)

Collection of rec'l 39,000 (54,000) (19,000)
Payment of loan (12,000) (12,000)
Equipment rental 15,000 (15,000)
Sale of securities 22,500 (18,000) 4,500
Depreciation on mach. (3,200) (3,200)
Payment of accounts pay (25,000) (25,000)
Sale of machinery 36,000 (45,000) (9,000)
Payment of loan (36,000) (36,000)
Reclassification of loan (14,000) 14,000
Balances 66,500 444,800 113,000 175,000 83,000 150,000 (23,700)

2.
Estimated Dividend
Liabilities and Owners Equity Book Value Distribution Payout %
Fully secured liabilities
(50,000 36,000 = 14,000) 113,000 113,000 100%
Partially secured liabilities 175,000 175,000 100%
Unsecured liabilities:
With priority 83,000 83,000 100%
Without priority 150,000 39,000 26%
410,000 410,000