Bn 0 building owned by 1. Philippine National Bank holds a P500,000 note secured by a Luigi Software, which has filed for bankruptey. If the property hasa book: et of B00. 000 and a fair market value of P450,000, what ia the best way the notes held by Philippine National Bank? The bank has a. Asecured claim of P500,000. ‘ b. Anunsecured claim of P500,000. ‘ : c. Asecured claim of P450,000 and an unsecured claim of P50,000. d. Asecured claim of P50,000 and an unsecured claim of P50,000. (Adapted) 2. Xand YInc. owes the Xylo Corporation P60,000 on account, which is secured by accounts receivable with a book value of 50,000. The unsecured portion 15 considered a claim under the bankruptcy law, X and Y has filed for bankruptcy. Ite statement of affairs lists the accounts receivable securing the Xylo account with an estimated realizable value of P45,000. Ifthe dividend to general unsecured creditors is 80%, how much can Xylo expect to receive? , a. P60,000 c. P57,000 d. 48,000 b. 58,000 (Adapted) P Corporation is a parent, having purchased 60% of S Company's common stock at par value forP600,000. S Company isin financial difficulty. The parent granted an unsecured loan of P200,000 to the subsidiary. An accounting statement of affairs for § Company shows a dividend of 30%. P Corporation can expect to receive on the loan of appropriately: “a. P120,000 c. b. 60,000 a. (Adapted) P Corporation is a parent, having purchased 60% of S Company’s common stock at par value for P600,000. S Company is in financial difficulty. The parent granted as unsecured loan of P200,000 to the subsidiary. An accounting statement of affairs for S Company shows a dividend of 30%. P Corporation can expect to receive payment for its Investment in S Company of approximately: a. P600,000 c. P108,000 b. — 180,000 d, 0 (Adapted)1. fe i © 20 12. © 2, dt 3 Ob 13. a 2. Oc 7 a 14 a 24, ad. a) 15. bb 25. 0d 6. c 160 a 26. 0 a ve c 17. d 27. © 8. a 18 oc 28. 0 a 9. d 19. a 29. b 10. b 20. b 30. b 1 © The P500,000 notes payable to PNB is considered as partially secured liabilities wherein a property with a fair market value of P450,000 is used as collateral. Therefore, PNB is secured to receive P450,000 because of the property while the balance of P50,000 of the notes is unsecured. 2 © The P60,000 owes to Xylo Corp. is considered a partially secured labilities. Accounts receivable with a realizable value of P45,000 is pledged to secure the liability. Therefore, the estimated amount to be paid to Xylo Corp. would be as follows: Accounts Receivable at net realizable value . P45,000 Add: Portion of free assets used to pay the unsecure: amount: (P60,000 — P45,000) x .80.... 12,000. Estimated amount to be paid to partially secured liabilities ..... P57,000 (c) 3. @) Since the P Corp. expect to recover P.30 for every P1 liability. Therefore, the unsecured liability of SCompany that would be paid were as follows: Unsecured loan ... -- P200,000 Multiplied by: Expected recovery per peso unsecured creditors ... 30% P 60,000 (b)5. Kent Ine, has foreed into bankruptey and has begun to liquidate. Unsecured claima will be paid at tho rate of 40 conta on the peso. Apex Co. holds a non- torent honring note recoivable fromm. Kent in the ‘amount of P100,000, collatorialized by machinery with a liquidation value of P25,000. (o bo realized by Apox on thie note receivable is: a. P26,000 ¢, — P66,000 b. 40,000 d. 65,000 (AICPA) a sauidatits aseets 6. Seco Corp. was forced into bankruptcy and isin the Braces Of ade on tie a A Or edt bparing note receivable from Seco . Hale holda a 230,000 noni: pat-be: Faas 1asof volaioratized by an asset with a book value of P35,000 and a liquidation value o P6,000, The amount to be realized by Hale on this note is a. —P6,000 c. P 15,000 b, 12,000 a. 17,000 (atcpay i i d interest on Bluoprint, Inc, signed a note payable to its bank for P10,000. Accrued in the mot on February 28, 2004 amounts to P250. The note is secured by ingentory, with a book value of P12,000. The invent is sold for P8,000 an f apeeeute creditors receive 30 percent of their claims. The bank should receive the following amount in settlement of the note and interest: a. P10,250 c. P8,675 b, 10,000 d. 8,000 a (Adapted) 8 The trust for Ardolio, Inc. prepares 4 statement of affairs which shows that unsecured creditors whose claims total P60,000 may expect to receive approximately P36,000 if assets are sold for the benefit of creditors. * Michael is an employee whois owed P750. + Meldcan holds a note for P1,000 on which interest of P50 is accrued; nothing has been pledged on the note. Compboy holds a note of P6,000 on which interest of P300 is accrued: securities with a book value of P6,500 and a present market value of P5,000 are pledged on the note. Serpor holds a note for P2,500 on which interest of P150 is accrued roperty with a book value of P2,000 Bre er iA riedeh ee and a present market value of How much may each of the following creditors hope to receive? Michael Meldean Compboy Serpor ¥ Pe 2 . ¥ 0 PO 3 a 350 1,060 3780 at 630 5,780 2,650 (Adantoa\Chapter 2 ent for involves pay™s twand payables transacte ate balance sheet. So; d in the usual U0. No. 3, except that the quest inilar to ; is ana any. Remember thatreceivables + Big proble ti in S Company. ; v its Investmens and subsidiary still exist on their separate i between Pavey or payment ia made, it will still be journalte’) does not when like an ordinary collection or payment of an acc rant atall the investment in subsidiary account. idati machinery. e oo Co. has a secured claim for the P25,000 liquidation value 27 ite te ‘The remaining P75,000 (P100,000 note — P26,000) is an unseoi™ eth ae that unsecured claims will be paid at the rate of P.40 cents on. Apex will receive: P25,000 Machinery at liquidation value ... Add: Portion of free assets used to pay the unsecured 30,000 t amount: (P100,000 = P25,000) x 40% ... 55,000 (c) 6 © : : Claims of secured creditors be satisfied before any unsecured claims are paid. Hale is a secured creditor in the amount of P5,000 (the liquidation value of the collateral). The remainder of Hale’s claim (P30,000 — P5,000 = P25,000) is an unsecured claim, because it is not secured by any collateral. Therefore, Hale, will receive a total of P15,000 on this note: Asset at liquidation value P 5,000 Add: Portion free assets used to pay the unsecured. amount: (P30,000 — P5,000) x .40..... .! 10,000 P_ 15,000 (©) 7 © Inventory, at selling price Add: Portion free assets used to pay the unsecured. sisi amount (P10,250—P8,000) x 30%... 675 P8,675 (c) . @ Michael's salary is an unsecured with priori receiy Made: F060 a, 000 P60, 000 aay ee A mou ee as +(P6,300 5 P5,000) x 60% = P5,780 por: Y secured creditor, receive P2,650 (P2,500+ P1650) (d)10. Corporate Liquidation 101 9. Erap Co. filed a volu, voluntary bankruptcy petition on August 15, 2008, and the statement of affairs reflects the following amounts; Estimated Book current Assets: value = __value_ aan pledged with fully secured creditors P 300,000 370,000 ts pledged with partially secured creditors, 180,000 120,000 Free assets... 420,000 320,000 P_ 900,000 Liabilities: Liabilities with priority P70,000 Fully secured creditor 260,000 Partially secured creditors 200,000 Unsecured creditors .. 540,000 P1,070,000 , Assume that the assets are converted to cash at the estimated current values and the business is liquidated. What amount of cash will be available to pay unsecured nonpriority claims? a. P240,000 c. — P320,000 b. 280,000 d. 360,000 (AICPA) Zamora and Co., Inc. purchased a Cadillac automobile with little cash down and signed a note, secured by the Cadillac, for 48 easy monthly payments. When the company files for bankruptcy, the balance due on the Cadillac amount to P6,000,000. The car has a book value of P8,000,000 and a net realizable value of P4,000,000. The unsecured creditors of Zamora and Co. can expect to receive 50 percent of their claims. In the liquidation, the bank that holds the note on the Cadillac should receive: a. P6,000,000 c. P4,000,000 b. 5,000,000 d. 38,000,000 (AICPA)Corporate Liquidation including priority claims, ie 9 @ The total cash available to pay all unsecured claims, seve the cash obtained from free assets (P320,000) and any exo" cash available from ed to satisfy those assets pledged with fully secured creditors after they are ust claims (P370,000 — P260,000 = P110,000). Therefore, the amount of cash to pay unsecured nonpriority claims: ‘Assets pledged to fully secured creditors, at current value... P370,000 Less: Fully secured creditors . 260,000 Excess cash from assets pledged to fully : secured creditors... P110,000 Add: Free assets, at current value 320,000 Total free assets . 430,000 Less: Liabilities with priority 70,000 Net free assets .... P360,000 (4) 10. ©) Car-cadillac, at net realizable value ... ‘4,000,000 ‘Add: Portion of free assets used to pay unsecured , amount: (P6,000,000 — P4,000,000) x 50% .. .. 3,000,000 5,000,000 (b) i. © \ To compute the estate deficit before the actual realization and liquidation is simply ie. Assets = Liabilities + Stockholders’ to formulate the basic accounting equation, equity. Therefore: / Assets, at net realizable VALUE Leesesepsesees P105,000 Less: Liabilities Per books... Add: Unrecorded interest 500 130,500 Estate (deficit) equity before realization and liquidation ............ ‘P(25,500) ()Chapter 2 102 any? 11. | The following data are provided by the Troubled ComP P150,000 405,000 Assets at book value Assets atnet realizable value 60,000 Liabilities at book value: 70,000 Fully secured mortgage .... Unsecured accounts and notes pay@! Unrecorded liabilities: 500 Interest on bank notes a Estimated cost of administering estate - The court has appointed a trustee to liquidate the company: jabilities should ts and liabilities s1 The journal entry made by the trustee to record the ass¢ an include an estate deficit of. a. P31,500 c. P25,500 b. 31,000 d. 25,000 (Adapted) in ared by 12. Using the same information in Number 11, the statement of affairs prepared by, the-trustee at this time should include an estimated deficiency + creditors of: a. P45,000 c. P31,500 . 39, . 25,000 b. 000 d. (Adapted) 13. Nah Lugi Corporation is in bankruptcy and is ‘being liqGidated by a court-appointed trustee. The financial report that follow was prepared by the trustee just before thé final cash distribution: : Assets: Cash ...... P100,000 Approved Claims: Mortgage payable (secured by property that was sold for P50,000) P 80,000 Accounts payable, unsecured . " Administrative expenses payable, a £0,000 unsecured ... i ble, d 8,000 Salaries payable, unsecure 2,000 P140,000 —=2 Chapter 2 12. ©) . ‘Total assets at net re: P1059 alizable value .. F ‘ ; Less: Fully secured liabilities 80.000 Total free assets ... Fg Less: Unsecured creditors with priority — 6,000 administrative expenses... P 39,000 Net free assets...... Less: Unsecured creditors without priority 70,000 Unsecured accounts and notes payable - *500 70,500 Interest on bank notes .. cate a Estimated deficiency to unsecured creditors ... Nee ret 100,000 Cash available ... 50,000 Less: Mortgage payable secured by property s —— Amount available to unsecured creditors .... ote P 50,000 Less:Unsecured creditors with priority Administrative expenses . P 8,000 A Salaries payable ... 2,000 10, Net free assets or amount available to unsecured » creditors without priority ... Ss P_40,000 Expected recovery percentage of unsecured creditors P40,000 / (P80,000 — P50,000) + P50,000..... posenope OE 50 Therefore, the cash is distributed as follows: Unsecured creditors with priority ... P 10,000 Partially secured creditors: Property at selling price ... Add: Portion of free assets used to pay the unsecured amount (P80,000— P50,000)x 50% 15,000 65, Unsecured Creditors without Priority es P50,000 x .50.... .- P50,000 25,000 P100,000 (a)Corporate Liquidation ae i ee mig Fine Administrative expenses are for trustees and other costs of Seas e debtor corporation’s estate. How should the P100,000 be distributed to the following creditors? Unsecured Partially Unsecured Creditors Secured. Creditors LW aa ir P80,000 20,000 b. 10,000 80,000 10,000 c. 5,000 65,000 25,000 d. 10,000 65,000 25,000 (Adapted) 14, OnDecember 18, 2008, the statement of affairs of Downside Company, whichis in bankruptcy liquidation, included the following: Assets pledged for fully secured liabilities P100,000 Assets pledged for partially secured liabilities .. 40,000 Free assets.. 120,000 Fully secured liabilitie: 80,000 Partially secured liabilities 50,000 Unsecured liabilities with priority’. 60,000 Unsecured liabilities without priority ...... 90,000 Compute the estimated amount to be paid to: Fully Unsecured. Partially Unsecured Secured Liabilities Secured Liabilities Liabilities w/ Priority Liabilities without priority a. » P80,000 P60,000 P50,000 + P70,000 b. 64,000 60,000. 48,000 88,000 ce. 80,000 48,000. 60,000 72,000 d. 80,000 60,000 > 48,000 72,000 (Adapted113 Comporate Liquidation 14. @ Assets pledged to fully secured liabilitie: r ea Less: Fully secured liabilities ..... an Excess of assets pledged to fully secured liabilities Bs 600) (free assets of fully secured liabi Add: Free assets sn 120,000 Total free assets to unsecured liabilities 140,000 Less: Unsecured liabilities with priority 80,000 Net free assets P_80,000. Unsecured liabilities: Partially secured liabilities ww. , P50,000, Less: Assets pledged to partially secured liabilities ine) 40,000, : -F, 10,009, Unsecured liabilities without priority .. 90,000. P100,000 Total unsecured liabilities ... Expected Recovery Percentage of Unsecured Liabilities: Net free assets 80,000 —— 80% P100,000 Total unsecured liabilities ~ Therefore, the estimated amount to be paid to each creditors are: Amount — “% of Recovery Fully secured liabilities .... ‘ P80,000 100% (80/80) Unsecured liabilities with priority ! ‘60,000 100% (60/60) Partially Secured Liabilities: Assets we P40,000 Add: Portion of free assets to pay i unsecurred creditors (P50,000—P40,000)x 80% 8,000 48,000 96% (48/50) Unsecured liabilities without priority: (P90,000 x 80%) ..... 72,000 80% (72/80) Total... P260,000* (d)Chapter 2 104 . 7 ,in bankruptcy 16. Amounts related to the statement of affairs of Windup Company, liquidation as April 1, 2008, were as follows: Assets pledged for fully secured liabilities . Assets pledged for partially secured liabilitie: Free assets... Fully secured liabilities Partially secured liabilities Unsecured liabilities with priority Unsecured liabilities without. priority itors, and (2) the Compute the: (1) total estimated deficiency to unsecured efedtare, anil 2) the costs per peso that unsecured creditors may’ expect to rec Company. ; (2) P.81 a. (1) P 78,000; (2). P.76 c. . (1) P108,000; ¢ : 158,000; (2) P.61 b. (1) P108,000; (2) P.70 a @)P: ae 16. The following data were taken from the statement of affairs for Liquo Company: Assets pledged for fully secured liabilities (fair value, P75,000) ..... , Assets pledged to partially. secured liabilities (fair value, P52,000)..... 74,000 Free assets (fair value, P40,000).. 70,000 Unsecured liabilities with priority 7,000 Fully secured liabilities 30,000 Partially secured liabilities ... 60,000 Unsecured liabilities without priority 112,000 Compute the: (1) total estimated deficiency to unsecured creditors, and (2) the expected recovery per peso of ‘unsecured claims. a. (1) 42,000; (2) P65 ce ()P 0; (2) P1.00 b. (@ 3,000; (2) P98 a. (1) P42,000; @) P 70 (Adapted)ii Chapter 2 meme aioe nd ODI “y i “he total ontimated amount to be paid to creditors of P260,000 can be sounterchocked by determining the total assets (at fair value): Asiete plodgod to fully secured liabiltie FO sacts pledged t tii i is a MrosAnaen a 0 partially secured liabilitie: 120,000 260,000 15. ® (1) Estimated deficiency to unsecured creditors: P 80,000 Assets pledged to fully secured liabilities 60,000. Less: Fully secured liabilities oa ane i 20, Free assets of fully secured liabilities Ee 000 Add: Free assets ........ c ‘ 2,000. ‘Total free assets to unsecured liabilities ah 000 Less: Unsecured liabilities with priority —— 100 Net free assets .... PEpzON Less: Unsecured liabilities Partially secured liabilities a ..-. P80,000 Less: Assets pledged to partially secured liabilities ..... .. 50,000 P 30,000 Unsecured liabilities without priority ...... 330,000 Total unsecured liabilities ...... f P360,000 Estimated deficiency to unsecured liabilities... P108,000 (b) (@) Expected Recovery Percentage of Unsecured Liabilities: ‘ P252,000/P360,000...... 70% or P.70 (b) Or, alternatively: (for estimated deficiency to unsecured creditors): Estimated (gain) loss or realization: (none, because hook value is assumed to be the fair value) PO Add: Administrative expense: 0 Unrecorded expenses/ liabilities 0 ~~ o105 Me Gorportte Liguidaion, we a ich there are 2° 17. Katherine, a CPA, has prepared a statement of affairs este oe ‘located to claims or liens are expected to produce P70,000, whiel Meee ve some ‘of the neecured claime of all classes totaling P108,000. The follo claims outstanding: Accounting fees for Katherine, P1,5 An unrecorded note for P1,000, on w1 held by Angie. : 3. Anote for P3,000 secured by P4,000 receivables, collectible doy. 4. API1,500 oe 2 which P30 of interest has accrued, hel i Property with a book value of P1,000 and a market vi ae pledged to guarantee payment of principal and interest 5. Unpaid income taxes of P3,500. 00. hich P60 of interest has accrued, we estimated to be 605 d by Joyots- ‘P1,800 is Compute the estimated payment to partially secured creditors: a. P1,060 c. P2,490 d. 2,790 b. 1,950 a ed ath che 18. The creditors if the Rogerod Corporation agreed to a liquidation based ont statement of affairs, supgested thet unsecured creditors, without priority would receive approximately P.60 on the peso. The unsecured creditors are intereated i determining whether the preliminary estimate still seems appropriate. Tar ot was originally assigned noncash assets of P1,480,000 and creditors cl Sea follows: fully secured, P670,000; partially secured, P400,000; unsecure ws b priority, P200,000, and unsecured without priority, P320,000. Assets with a bool value of P45,000 and unsecured liabilities (without priority) of P35,000 were subsequently discovered. Assets with a total book value of. 'P740,000 were sold for P715,000 net. Fully secured liabilities of P410,000 and partially secured liabilities of P280,000 were paid. Remaining liquidation expenses were estimated to be 30,000. Assume the remaining noncash assets have an estimated net realizable value as follows: Assets traceable to fully secured creditors ... P240,000 Assets traceable to partially secured creditors .. 110,000 Remaining assets ... 382,000 Determining the revised estimate of the dividend to be received by ‘unsecured creditors without priority: a. 100.00% ce. 45.97% b. 66.17% d. Cannotbe determined115 Corporate Liquidation Less: Loss borne by the owners/stockholders’ equity ‘Total assets (P80,000 + P50,000 + P272,000) .. . 402,000 Less: Total liabilities (P60,000 + P80,000 + P40,000 + P330,000)_510,000 Stockholders’ equity (deficiency) ......2108,000 16. (a) @) Estimated deficiency to unsecured creditors: Assets pledged to fully secured liabilities, at fair value P. 75,000 Less: Fully secured liabilities .. — 80.000 Free assets of fully secured liabilitie: 45:00 Add: Free assets, at fair value 140,900, ‘Total free assets to unsecured liabilities . Less: Unsecured liabilities with priority Net free assets... Less: Unsecured liabilities: Partially secured liabilities ..... Less: Assets pledged to partially secured liabilities, fair value .... 52,000 "P 8,000 Unsecured liabilities without priority ...... 112,000 Total unsecured liabilities P120,000 Estimated deficiency to unsecured liabilities... P 42,000 (a) Or, alternatively: Estimated (gain) loss on realization: Loss on realization of assets pledged to fully secured liabilities (P90,000 - P'75,000) ...... P 15,000 Loss on realization of assets pledged to partially secured liabilities (P74,000—- P52,000).... Loss or realization of free assets (P70,000 — P40. 000) 30,000 Add: Administrative expenses .. Unrecorded expenses / liability a Total estimated net loss ....——— H6. Chapter 2 Less: Loss borne by the owners/stockholders’ equity: Total assets at book value (P90,000 + P74,000 + P70,000) ......... P234,000 Less: Total liabilities (P7,000 + P30,000 P60,000 + P112,000) 209,000 _ 25,000 Estimated deficiency to unsecured creditors 42,000 (a) @ ° Expected Recovery per peso of unsecured claims: ' P78,000/P120,000 P___.65 (a) 17. @, Total Free Assets P 70,000 Less: Unsecured Ce! Administrative expenses — accounting fees P1,500 Unpaid income taxes ... 3,500 5,000 Net Free Assets .. P_65,000 Total Unsecured Creditors without Priority: Total Unsecured Claims of all classes P 105,000 Less: Unsecured Creditors with Priority 5,000 Total Unsecured Creditors without Priority P100,000 % of Recovery; P65,000/ P100,000 = 65% Estimated payment to partially secured creditors Realizable value of A/R (60% x P60,000) .. P 2,400 390 Add: Unsecured Portion: 65% (P3,000 - P2,400 Total ....Corporate Liquidation ue 18. 19. © Unsecured. Fully Partially Secured _ Secured Original balance .aouin, Subsequently discovered items... Sale of assets e Payment of liabilities Estimated liquidation 45,000 715,000 (740,000) + (690,000) expente..... 30,000 (20,000) P 25,000 P 785,000 P260,000 P120,000 280,000 355,000 (155,000) Balance to date.. Anticipated transactions: Liquidation of remaining assets .... 8,000) Piynuan or 732,000 (785,000) creditors... Pa (240,000) (240,000) secured creditors... (10, Reallocation of secured Marre) bene AMOUR vanes (20,000) _ (40,000) ___ 30,000 Anticipated balance... P407,000 P___0 Po P 0 230,000 385,000 (208,000) Anticipated dividend to unsecured creditors without priority: Assets available to unsecured creditors (P407,000 — P230,600) Claims of unsecured creditors without priority Dividend (P177,000 — P385,000) 177,000 P835,000 45.97% m ; stimated losses on realization of assets sve. 2,000,000 Less: Estimated gains on realization of assets...... P1,440,000 Additional assets* 1,280,000 _ 2,720,000 Estimated net (ain) or logs in assets realization P( 720,000) Add: Additio: jabilities** .. 960,000 Estimated net (gain) or loss P 240,000 Less: Stockholders equit i Ganital stock, 2,000,000 Deficit... 1,200,000, 800,000 Estimated amount to be recovered by stockholders P_ 560,000 Therefore, the pro-rate payment on the peso is: Estimated amount to be recovered by stockholders P560,000 P70 @ Stockholders’ Equity * Paooo00° 22 *Additional assets are assets completely written-off in the books in the past year but subsequently have a realizable value. ** Additional liabilities, are liabilities in addition to the recorded liabilities in the balance sheet, In other words, they are unrecorded liabilities and expenses. Examples are liquidation expences uch as administrative andimectoe eee totikey on damage suits, acquired interest on mortgage payable, unbilled creditor's fees an e.ail ; Chapter 2 the following vt of ab , me! 19. Palubog Co. is insolvent and its stal® 1,440,000 information: 2,000,000 1,280, Estimated gains on realization atts . 960,000 Estimated losses on realization 2,000,000 Additional assets 1,200,000 Additional liabilities pital stock Deficit .. (estimated amount to be The pro-rate payment on the peso t0 stockolers recovered by stockholders) is: PST a. P30 co (Adapted) b.43 ante ee 1.As of March 31, oe ince January i. 20. Zero Na Corp. has been undergoing liquidation SiNC®""" conted below: . A jquidation is its condensed statement of realization and liquidation Assets: P1,375,000 Assets to be realized 750,000 i 1,200,000 1,375,000 s P1,875,000 \ Liabilities not liquidated 1,700,000 ej. —Liabilities to be liquidated 2,250,000 -Tiabilities assumed 1,625,000 Revenues and Expenses; Supplementary charges P. oe 135000 The net gain (loss) for the three-month period ending March 31 ig: G25 a. P250,000 b. (625,000) a 426,000 750,000 (Adapted)Corporate Liguidetion | Greece am Items 2 1 t) hrough 33 are based on the following data: The Palubog C and quasicreorgans, has decided to seek liquidation after previous restructuring balance sheet as of Mon ttmpts failed. The company has the following condensed of May 1, 2008: Liabilities and Stockholders’ Equity Accrued payroll P 40,000 = Loans from offic 50,000 2 Accounts payable ~a, Equipment loan payal Business loan payable Common stock Deficit Total .. . P702,000) The equipment loan pay able is secured by specific plant assets having a book P40, . ce P300,000 and a realizable value of P350,000. Of the accounts payable, value of Pas ented by inventory which has a cost of P40,000 and a liquidation Roce ah 000. The balance of the inventory has a realizable value of P32,000. ceivables with a book value and market value of P100,000 and P80,000 respectively have been pledged as collateral on the business loan payable. The balance of the receivables have a realizable value of P150,000. (Adapted) 21. Assuming trustee expenses of P12,000 in addition to recorded liabilities, which of the remaining unsecured creditors has the next highest order of priority. @ Accrued payroll c. Loan from officer Equipmentloan payable d. Business loan payable 22. The realizable value of assets pledged with fully secured creditors is: a. P459,000 c. P40,000 by 44,000 d. 489,000 23. Of those creditors who are partially secured, their unsecured amounts are: a. 430,000 c. P540,000 by : 110,000 d. 120,000 24. The total realizable value of free assets to unsecured creditors before unsecured creditors with priority is: a. — P628,000 c, P220,000 b. 232,000 Ce 198,000.108 26. 26. Chapter The dividend to unsecu: i i red cr unsecured creditors (rounded) ee anaes rm a. 90% b. 100% (er 88% d. 76% Estimated deficiency to ‘unsecured creditors is: a Pe c. P 2,000 chy 22,000 d 12,000 . Estimated loss on asset disposition ig: 51,000 i a. 5 } c. 51,000 b. 89,000 @ 901000 a . Estimated gain as asset disposition is: /@) 56,000 52,000 p.54,000 a 6000 . Estimated amount paid to unsecured creditors with priority is: a. 10,000 fe) -P 40,000 b. 30,000 < 110,000 |. Estimated amount paid to fully secured creditors is: @ 40,000 c, -P470,000 b. 390,000 a. 430,000 . Estimated amount paid to unsecured creditors without priority is: a. 70,000 cc. P20,000 &} 61,600 a. 50,000 . Estimated payment to partially secured creditorsis: a. P358,800 c. P168,000 bs 516,800 d. 430,000 . Estimated payment to creditors is (discrepancy is expected due to rounding off). a. P580,000 ¢., P571,000 b. 659,600 @, 668,400: ie Chapter 2 [Se = © sement of Realization and Liquidation Credits: P 1,200,000 Aseets realized .. 1,375,000 Assets not realize 2,250,000 Liabilities to be liquidated . 4,625,000 Liabilities assumed .... 2,800,000 ts* . area Supplementary credit 9,250,000 21. 22. @) Total credits... Statement of Realization and Liquidation. Debits: Bs | P1,375,000 aoets to bere 750,000 Aaa oie 1,875,000 Liabilities liquida 1'700,000 Liabilities not liquidate 3'125,000 Supplementary charge** . a P8,825,000 Total Debits ..... P_425,000 (c) Net gain for the three month period... nue or income items such sales, interest income, *Supplementary credits are revel etc. **Supplementary debits are cost and expense items such as purchases, expenses, etc, @) ; Claims of unsecured creditors must be satisfied to whatever extent possible in the following order of priority: 1. _ Expenses to administer the estate. 2. Unpaid salaries, etc. Ofall the assets listed only inventory is classified as an asset pledged to fully secured creditors with a realizable value of P44,000 (book value of accounts payable is P40,000)Corporate Liquidation ue 23. (b) The partially secured creditors are as follows: Liabilities Realizable Value/Secured Unsecured Equipment loan payable .. " P360,000 350,000 P 10,000 Business loan payable ...... 180,000 80,000 100,000 P430,000 P110,000 (b) 24. @ The realizable value of assets are as follows: Cost Realizable Value Cash ....... . P 12,000 P 12,000 Receivables (net). 100,000 80,000 Receivables (net).. 180,000 150,000 Inventory 40,000 44,000 Inventory 30,000 32,000 Plant assets (net) 300,000 350,000 Total .......... P668,000 Less:Fully secured creditors. (accounts payable) .... 40,000 Partially secured creditors (refer to No. 23) 430,000 Total free assets available to unsecured creditors ..... P198,000 (d) Refer to No. 25 for alternative computation,raptor 2 120____—— aa ae Ge pledged to fully secured credito! Inventory, at liquidation v value P 44,000 Less: Accounts payable... __ 40,000 Free assets of fully secured creditors . jdabaenensens P 4,000 ts: a pee P 12,000 (book value, P280,000—P100,000) 150,000 Inventory, realizable value (book value, P70,000 — P40,000) .... ‘Total free assets to unsecured creditors ...... Less: Unsecured creditors with priority ‘Accrued payroll .. Net free assets 32,000 194,000 P198,000 40,000 P158,000 Unsecured Creditors: Partially secured creditors (refer to No. 23) Equipment loan payable... .. P360,000 Less: Plant assets, at realizable value..... 350,000 P 10,000 P180,000 80,000 100,000 110,000 Business Joan payable .... Less: Receivable at market value Unsecured creditors without priority: Loans from officer ... P 50,000 Accounts payable 60, 000— P40, ,000) 20,000 70,000 Total unsecured creditors P180,000 ixpected recovery percent ti , P158,000/P 180.000 age of unsecured creditors (rounded): 88% (c) yComorate Liquidation i 26. &) Net free assets (No. 25)... 158,000 -180,000 27. 28. 29, Total unsecured creditors (No. 25) Estimated deficiency to unsecured creditors .. P_22,000 (b) or, alternatively: Estimated losses on realization of assets: Receivables [(P80,000 + P150,000) —P280,000] Prepaid expenses* Goodwill** .. Less: Estimated gains on realization of assets: Inventory [(P44,000 + P32,000)-P70,000] P 6,000 Plant assets (P350,000 —P300,000) - __50,000 __ 56,000 Estimated net (gains) or loss on realization of é P 34,000 assets Add: Unrecorded liabilities/expenses Estimated net (gains) or loss... Less: Loss borne by owners/stockholders’ e Common stock Deficit Estimated deficiency to unsecured creditors ...... P 34,000 aquity: *Normally, no realizable value is assigned to prepaid expenses because the amount is relatively immaterial. **TIn the event of liquidation, goodwill is considered worthless. @ Refer to No. 26. @ Refer to No. 26. © - Refer to No. 25. Since assets amounting to P198,000 is available for payment, therefore, creditors of this class should expect to recover the full amount of 'P40,000., SS, SS Chapter 2 122 mie Zhe . . . : fee to No. 25. Since assets with a realizable/liquidation value of Lerten available to secure this type of creditor, therefore, creditors of this class sho’ expect to recover the full amount of P40,000. 31. Unsecured creditors without priority: 70,000 x 88%.... ~- B 61,600(b) 32, @) Partially secured creditors Assets at realizable value: (refer to No. 25) 350,000 + P80,000.... - P480,000 Add: Portion of free assets used to pay unsecured creditors without priority [360,000 + P180,000) -P430,000] x 88%......... _ 96,800 526,800 (b) 33. @ Amount % of Recovery Fully secured reditors (No. 30) .......... P 40,000 100% (40/40) Partially secured creditors (No. 32)..... 526,800 98% (626.8/540) Unsecured creditors with priority (No. 29). . 40,000 100% (40/40) Unsecured creditors without ‘priority (No. 30)... es 61,600 88% (61.6/70) P668,400* (d) *Discrepancy of P400 due to rounding-off and this can be i 4 proven by adding th total assets at realizable value, i.e. P668,000 (refer to No. 24) Re