Professional Documents
Culture Documents
5
5
1. Solutions:
Requirement (a):
Free assets:
Excess of land over loan payable 550,000
Cash 200,000
Accounts receivable 450,000
Total free assets 1,200,000
Unsecured liabilities with priority:
Administrative expenses (180,000)
Salaries payable (800,000)
Net free assets 220,000
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Requirement (b):
Requirement (c):
2
Requirement (d):
Requirement (e):
500,000 x 20.95% = 104,761.90
Requirement (f):
BYE-BYE CORPORATION
STATEMENT OF AFFAIRS
AS OF JANUARY 1, 20X1
Available for
Book Realizable unsecured
values ASSETS values creditors
Assets pledged to fully
secured creditors:
1,000,000 Land 1,300,000
Loan payable (750,000) 550,000
Free assets:
200,000 Cash 200,000
500,000 Accounts receivable 450,000 650,000
Total free assets 1,200,000
Less: Unsecured liabilities
with priority (see below) (980,000)
Net free assets 220,000
Estimated deficiency
(squeeze) 830,000
2,300,000 Totals 1,050,000
Unsecured
Book Realizable non-priority
values LIABILITIES values liabilities
Unsecured liabilities with
priority:
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- Administrative expenses 180,000
800,000 Salaries payable 800,000 -
Partially secured
creditors:
500,000 Notes payable 500,000
Equipment - net (150,000) 350,000
Unsecured creditors:
700,000 Accounts payable 700,000 700,000
2. A
3. A
4. D
EXERCISE 1:
Solutions:
Requirement (a):
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Free assets:
Requirement (b):
Requirement (c):
5
liabilities
Short-term bank loan (fair value of
(300,000)
machinery)
Requirement (d):
Requirement (e):
100,000 x 28.33% = 28,330
Requirement (f):
None.
Requirement (g):
GONE CORPORATION
STATEMENT OF AFFAIRS
AS OF JANUARY 1, 20X1
Available for
Realizable unsecured
Book values ASSETS values creditors
Assets pledged to fully secured
creditors:
800,000 Building - net 1,000,000
Mortgage payable (700,000) 300,000
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Short-term bank loan (500,000) -
Free assets:
100,000 Cash 100,000
600,000 Accounts receivable 500,000
900,000 Inventories 500,000 1,100,000
Total free assets 1,400,000
Less: Unsecured liabilities with priority
(see below) (1,060,000)
Net free assets 340,000
Estimated deficiency (squeeze) 860,000
3,000,000 Totals 1,200,000
Unsecured
Realizable non-priority
Book values LIABILITIES values liabilities
Unsecured liabilities with priority:
Unsecured creditors:
300,000 Accrued payables 300,000
700,000 Accounts payable 700,000 1,000,000
EXERCISE 2:
1. Solution:
Realizable Available for unsecured
value creditors
Assets pledged to fully
secured creditors 370,000
Fully secured creditors (260,000) 110,000
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Free assets 320,000
Total free assets 430,000
Liabilities with priority (70,000)
Net free assets 360,000
2. Solution:
Secured and Unsecured liabilities
Priority claims without priority
Partially secured creditors 200,000
Assets pledged with partially
(120,000)
secured creditors 80,000
3. Solution:
Assets pledged with partially secured creditors 120,000
Partially secured creditors 200,000
Assets pledged with partially secured creditors (120,000)
Excess to be paid from net free assets 80,000
Multiply by: Recovery percentage 58.06% 46,448
Total amount paid to partially secured creditors 166,448
4. Solution:
Unsecured creditors 540,000
Multiply by: Recovery percentage 58.06%
Amount paid to unsecured creditors 313,524
Solutions:
Requirement (a):
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Available for unsecured creditors 600,000
Free assets:
Excess of building over loan payable 600,000
Cash 200,000
Total free assets 800,000
Unsecured liabilities with priority:
Net defined benefit liability (600,000)
Legal and other fees (100,000)
Net free assets 100,000
Requirement (b):
Requirement (c):
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Legal and other fees (100,000) (700,000)
Requirement (d):
Requirement (e):
Amount Estimated Estimated
of claim recovery % recovery
Unsecured liabilities with
priority:
Net defined benefit liability 600,000 100% 600,000
Legal and other fees 100,000 100% 100,000
Partially secured
creditors:
Short-term bank loan (fair 300,000 100% 300,000
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value of inventories)
Excess - unsecured portion 200,000 20% 40,000
Total 500,000 340,000
Unsecured creditors
without priority:
Accounts payable 300,000 20% 60,000
Shareholders' equity
Share capital 1,000,000 0% -
Requirement (f):
FIREWOOD CORPORATION
STATEMENT OF AFFAIRS
AS OF JANUARY 1, 20X1
Available
for
Book Realizable unsecured
values ASSETS values creditors
Assets pledged to fully
secured creditors:
800,000 Building - net 1,300,000
Notes payable (700,000) 600,000
Free assets:
200,000 Cash 200,000
100,000 Prepaid assets -
Total free assets 800,000
Less: Unsecured liabilities
with priority (see below) (700,000)
Net free assets 100,000
Estimated deficiency
(squeeze) 400,000
1,550,000 Totals 500,000
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values non-priority
liabilities
Unsecured liabilities with
priority:
- Net defined benefit liability 600,000
600,000 Legal and other fees 100,000 -
Unsecured creditors:
300,000 Accounts payable 300,000 300,000
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