ACT130: ACCOUNTING FOR SPECIAL TRANSACTIONS

ASSIGNMENT
TOPIC: CORPORATE LIQUIDATION
DEADLINE: OCTOBER 2, 2020. 11:59PM

Provide the following requirements. Show your computations.

PROBLEM 1
X Company is trying to decide whether to seek liquidation or
reorganization. X has provided the following balance sheet:
X Company
Balance Sheet
February 23, 2009
Current Assets:
Cash $ 1,000
Investments 28,000
Accounts receivable 46,500
Inventory 72,000
Prepaid expenses 4,200 $151,700
Plant & Equipment
Land $65,000
Building 180,000
Equipment 75,300
320,300
Intangibles
78,000
Total assets
$550,000

Current Liabilities:
Accounts payable $127,000
Accrued expenses 99,000
Notes payable (secured by inventory) 68,000
$294,000
Long-term Liabilities
Notes payable (secured by land and building) 300,000
Stockholders’ Equity
Common stock $100,000
Retained earnings (deficit) (144,000)
(44,000)
Total Liabilities and Stockholders’ Equity $550,000

Additional information is as follows:

- The investments are currently worth $13,000.
- It is estimated that $32,000 of the accounts receivable are
collectible.
- The inventory can be sold for $74,000.
- The prepaid expenses and the intangible assets have no net
realizable value.
- The land and building are currently valued at $250,000.
- The equipment can be sold for $60,000.
- Administrative expenses (not yet recorded) are estimated to be
$12,500.
- Accrued expenses include $17,000 of salaries payable ($11,000 to one
employee and $3,000 each to two other employees).
- Accrued expenses include $7,000 of unpaid payroll taxes.

1. Compute the amount of total free assets.

2. Compute the amount of total liabilities with priority.
3. Compute the amount of free assets after payment of liabilities
with priority.
4. Compute the amount of unsecured liabilities without priority.
5. What is the payout percentage to unsecured creditors? (Round the
percentage to a whole number and two decimal places.)
6. How much will be paid to the holder of the note payable secured
by the land and building? (Round your payout percentage to the
nearest whole number.)
7. How much will Hampton’s creditor of an unsecured accounts payable
of $4,000 receive?
8. Prepare a Statement of Financial Affairs.

PROBLEM 2
Moodle Inc. was a hardware store that operated in MSU, GENSAN.
Management made some poor inventory acquisitions that loaded the store
with unsalable merchandise. Due to the decline in revenues, the
company became insolvent. Following is a trial balance as of March
15, 2009, the day the company filed for liquidation.
 D e b it C re d it
A c c o u n ts p a y a b le $ 4 2 ,9 0 0
A c c o u n ts re c e iv a b le $ 3 2 ,5 0 0
A c c u m u la te d d e p re c ia tio n — b u ild in g 6 5 ,0 0 0
A c c u m u la te d d e p re c ia tio n — e q u ip m e n t 2 0 ,8 0 0
A d d itio n a l p a id -in c a p ita l 1 0 ,4 0 0
A d v e rtis in g p a y a b le 5 ,2 0 0
B u ild in g 1 0 4 ,0 0 0
C ash 1 ,3 0 0
C o m m o n s to c k 6 5 ,0 0 0
E q u ip m e n t 3 9 ,0 0 0
In v e n to ry 1 3 0 ,0 0 0
In v e s tm e n ts 1 9 ,5 0 0
L and 1 3 ,0 0 0
N o te p a y a b le — Id a h o S a v in g s a n d L o a n (s e c u re d b y
lie n o n la n d a n d b u ild in g ) 9 1 ,0 0 0
N o te p a y a b le — S e c o n d N a tio n a l B a n k (s e c u re d b y
e q u ip m e n t) 1 9 5 ,0 0 0
P a y ro ll ta x e s p a y a b le 1 ,3 0 0
R e ta in e d e a rn in g s (d e fic it) 1 6 3 ,8 0 0
S a la rie s p a y a b le (s p lit e q u a lly b e tw e e n tw o e m p lo y e e s ) 6 ,5 0 0
T o ta ls $ 5 0 3 ,1 0 0 $ 5 0 3 ,1 0 0

Company officials believed that sixty percent of the accounts

receivable could be collected if the company was liquidated. The
building and land had a fair value of $97,500, while the equipment was
worth $24,700. The investments represented shares of a nationally
traded company that could be sold at the time for $27,300. The entire
inventory could be sold for only $42,900. Administrative expenses
necessary to carry out a liquidation would have approximated $20,800.

Required:
Prepare a statement of financial affairs for MOODLE Inc. as of March
15, 2009.