EXAMPLE COMPANY

Statement of Affairs
Date

Book Estimated
Valu Assets Realizable Free Assets
e Values

P xx (1) Assets Pledged to Fully Secured Creditors (itemized) 1,000

Less: Liabilities to Fully Secured Creditors (itemized) (500) 500

xx (2) Assets Pledged to Partially Secured Creditors (itemized) 300

xx (3) Free Assets (itemized) 200

Total Free Assets 700

Less: Unsecured Liabilities with Priority (100

Net Free Assets (Amount available for Unsecured Liabilities without Priority) 600

Estimated deficiency to Unsecured Creditors (to balance) xx

xx TOTAL xx

Book
Creditors’ Unsecured
Valu Liabilities and Equity
Claims Liabilities
e

P xx (1) Fully Secured Creditors (itemized) 500

xx (2) Partially Secured Creditors (itemized) 400

Less: Assets Pledged to Partially Secured Creditors (itemized, refer to (2) above) (300) 100

xx (3) Unsecured Creditors with Priority (itemized) 100

xx (4) Unsecured Creditors without Priority (itemized) 800

xx Stockholders’ Equity -

xx TOTAL UNSECURED CREDITORS xx

 ILLUSTRATION – Statement of Affairs

Business Closed, Inc., which filed a voluntary bankruptcy petition on September 1, 2020, had the following information regarding
liquidation and realizations:

Assets
Cash 1,000
Notes receivable 2,500
Accounts Receivable, net 12,500
Finished Goods 20,000
Work in Progress 25,000
Raw Materials 10,000
Supplies 2,500
Prepayments 4,000
Land 35,000
Building, net 55,000
Equipment, net 30,000
Goodwill 7,500

Liabilities and Stockholders’ Equity

Notes payable to bank, secured by Accounts Receivable 17,500
Accounts payable 46,500
Accrued Interest (P1,000 to bank, P3,000 to insurance company) 4,000
Accrued salaries and wages 3,500
Accrued payroll taxes 1,000
Notes payable to insurance company, secured by Land and Building 87,500
Common Stock 50,000
Deficit (5,000)

1. Finished goods can be sold for P12,000, with P1,000 expected costs to ship.
2. The work in process can be completed after P500 worth of labor is incurred. On completion, this can be sold for P17,000,
with P1,500 costs to ship.
3. The raw materials can be completed after P1,200 worth of labor is incurred. On completion, this can be sold for P9,000,
with P1,800 costs to ship.
4. Supplies will be substantially consumed and will have remaining value of P500.
5. Prepayments are to be expired during liquidation period.
6. Land has fair value of P37,500.
7. Building has fair value of P57,500.
8. Equipment can be sold at P14,000.
9. Previously written-off patents are realizable at P10,375.
10. P3,000 employee benefits is to be accrued.
11. The company estimates that P7,500 in court and filing fees, appraisal fees, and legal and accounting fees will be incurred
in connection with the liquidation.
12. Accounts payable include P3,000 to the company’s attorney for legal work in connection with the patent research and
collection efforts on some receivables that have been written off. Also included is P2,500 owed to certified public
accountants in connection with the December 31, 2019 audit of the company’s financial statements.

Required: Prepare Statement of Affairs.

 STATEMENT OF REALIZATION AND LIQUIDATION
Pro-forma T-accounts

Assets (except cash)

Assets to be realized – Assets realized- cash proceeds
beginning balances
Assets acquired-during the period Assets not realized- ending
balances

Liabilities
Liabilities liquidated Liabilities to be liquidated- beg
balances
Liabilities not liquidated Liabilities incurred- additional
during the periods

Revenue and Expenses

Expense and losses Revenue and gains
 Illustration – Statement of Realization and Liquidation

Exit, Inc. balance sheet on October 1, 2020 is as follows:

Assets Liabilities and Equity

Cash 30,000 Accounts payable 160,000
Financial Assets at FVTPL 90,000 Mortgage payable 140,000
Accounts receivable 120,000 Unearned revenue 25,000
Inventory 110,000 Share capital, P10 par 211,000
Equipment, net 36,000 Deficit (150,000)
386,000 386,000

During October:

Non-cash transactions:
a) Purchases of inventory on account, P11,000.
b) Sales of inventory on account, P44,000.

Cash receipts:
a) Cash sales, P36,000.
b) Collections on accounts receivable, P80,000.
c) Interest collected on FAFVTPL, P4,600.
d) Sale of FAFVTPL for cash, P98,000.

Cash disbursements:
a) Payment of liquidation expenses, P13,000.
b) Payment of accounts payable, P70,000.
c) Cash purchases, P24,000.

As of October 31, 2020, it is estimated that P7,000 of the accounts receivable will not be collected. Salaries and wages of P4,300
remains unpaid. Interest of P1,800 has accrued on the mortgage payable. Cost of goods sold in October amounted to P86,000.
Depreciation of equipment for the month is P500. Of the unearned revenue, P1,000 is to be transferred to rental income for the
month.

Required: Prepare Statement of Realization and Liquidation.