A.

ACCOUNTING FOR CORPORATE LIQUIDATION

1. The Metro Bank loaned P40,000 to Iago Company. The loan is secured by inventory with a
book and fair value of P50,000 and P30,000, respectively. What amount will the bank
receive if unsecured creditors receive 25% of their claims?

2. The Alfonso Company owes P200,000 on a note payable plus P8,000 in interest to its bank.
The note is secured by inventory with a book value of P160,000 and fair value of P120,000.
What amount will the bank receive if unsecured creditors receive 75% of their claims?

3. The Rafael Company owes P15,000,000 on the mortgage of its building to City Bank. The
building has a net book value of P20,000,000 and a fair value of P18,000,000. When Rafael
file for liquidation, it owed interest of P90,000; when the building is sold for P18,000,000,
the interest due on the mortgage is P200,000. What amount will the bank receive if the
unsecured creditors received 80% of their claims?

Paco Company

When the Paco Company filed for liquidation with Securities and Exchange Commission, it
prepared the following balance sheet:

Current assets (net realizable value, P50,000) P80,000

Land and building (fair value, P240,000) 200,000
Goodwill (fair value, P0) 40,000
Total assets P320,000

Accounts payable P160,000

Mortgage payable (secured by land and building) 200,000
Common stock 100,000
Retained earnings (deficit) (140,000)
Total P320,000

4. Refer to Paco. What is the estimated deficiency to unsecured creditors?

5. Refer to Paco. What percentage of their claims are the unsecured creditors likely to get?
6. A company is to be liquidated and has the following liabilities:

Income taxes P8,000

Notes payable (secured by land) 120,000
Accounts payable 83,000
Salary payable (evenly to two employees) 6,000
Bonds payable 70,000
Administrative expenses for liquidation 20,000

The company has the following assets:

Book Value Fair Value

Current assets P80,000 P33,000
Land 100,000 90,000
Building and equipment 100,000 110,000

How much will the holders of notes payable collect following the liquidation?
 7. Caerwyn Company has had severe financial difficulties and is considering the possibility of
liquidation. At this time, the company has the following assets (stated at net realizable
value) and liabilities.

Assets (pledged against debts of P70,000) P116,000

Assets (pledged against debts of P130,000) 50,000
Other assets 80,000
Liabilities with priority 42,000
Unsecured creditors 200,000

In liquidation, how much would be paid to the partially secured creditors?

8. The Madrid Company has the following:

Unsecured creditors P230,000

Liabilities with priority 110,000
Secured liabilities:
Debt one, P210,000; value of pledged asset 180,000
Debt two, P170,000; value of pledged asset 100,000
Debt three, P120,000; value of pledged asset 140,000

The company also has a number of other assets that are not pledged in any way. The
creditors holding debt two want to receive at least P142,000. For how much do these free
assets have to be sold so that debt two would receive exactly P142,000?

Tave Company

The following are data provided by Tave Company:

Assets at book value P100,000

Assets at net realizable value 75,000
Liabilities at book value:
Fully secured mortgage 40,000
Unsecured accounts and notes payable 45,000
Unrecorded liabilities:
Interest on bank notes 250
Estimated administrative expense 4,000

A trustee is appointed to liquidate the company.

9. Refer to Tave. The statement of affairs prepared by the trustee at this time should include
an estimated deficiency to unsecured creditors of:

10. Dalton Company filed a voluntary bankruptcy petition on August 15, 2018, and the
statement of affairs reflects the following amounts:

Book Estimated
Carrying Current
Value Value
Assets:
Assets pledged with fully secured creditors P150,000 P185,000
Assets pledged with partially secured creditors 90,000 60,000
 Free assets 210,000 160,000
P450,000 P405,000

Liabilities:
Liabilities with priority P35,000
Fully secured creditors 130,000
Partially secured creditors 100,000
Unsecured creditors 270,000
P535,000

Assume that the assets are converted into cash at the estimated current value and the
business is liquidated. How much cash will be available to pay the unsecured non priority
claims?s

11. Farren Company has been forced into bankruptcy and liquidated. Unsecured claims will be
paid at the rate of P0.50 on the peso. Gold Company holds a non-interest bearing note
receivable from Farren in the amount of P50,000, collateralized by machinery with a
liquidation value of P10,000. The total amount to be realized by Gold on this note receivable
is:

12. The statement of affairs for Nairi Company shows that approximately P0.78 on the peso
probably will be paid to unsecured creditors without priority. The company owes Wood
Company P23,000 on a promissory note, plus accrued interest of P940. Inventories with a
current fair value of P19,200 collateralize the note payable. Compute the amount that Wood
should receive from Nairi assuming that actual payments to unsecured creditors without
priority consist of 78% of total claims. Round all amounts to the nearest peso.

Mael Company

The following data are taken from the statement of affairs of Mael Company:

Assets pledged for fully secured liabilities

(current fair value, P75,000) P90,000
Assets pledged for partially secured liabilities
(current fair value, P52,000) 74,000
Free assets (current 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

13. Refer to Mael. The amount that will be paid to creditors with priority is:
14. Refer to Mael. The amount to be paid to fully secured creditors is:
15. Refer to Mael. The amount to be paid to partially secured creditors is:
16. Refer to Mael. The amount to be paid to unsecured creditors is: