ACT130: ACCOUNTING FOR SPECIAL TRANSACTIONS

ASSIGNMENT
TOPIC: CORPORATE LIQUIDATION

Problem 1

1. Compute the amount of total free assets.

Cash $ 1000
Investments 13,000
Accounts Receivable- 32,000
Inventory 74,000
Land and Building 250,000
Equipment 60,000
$430,000
Less:
Fully Secured Liability (68,000)
Partially Secured Liability (250,000)
Total Free Assets $112,000

2. Compute the amount of total liabilities with priority.

Liabilities with priority
Salaries Payable $17,000
Payroll Taxes Payable 7,000
Total $24,000

3. Compute the amount of free assets after payment of liabilities with priority.
Total Free Assets $112,000
Unsecured Liability with Priority (24,000)
Net Free Assets $ 88,000

4. Compute the amount of unsecured liabilities without priority.

Unsecured Liabilities without priority
Excess Liability $50,000
Accounts Payable 127,000
Accrued Expenses 75,000
$252,000

5. What is the payout percentage to unsecured creditors? (Round the percentage to a

whole number and two decimal places.)
$88,000 / $252,000 = 0.35 or 35%

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.)
Land and Building $250,000
Excess Liability 17,500 (50,000 x 35%)
$267,500
7. How much will Hampton’s creditor of an unsecured accounts payable of $4,000
receive?
Unsecured Accounts Payable $4,000
X 35%
$1,400

8. Prepare a Statement of Financial Affairs.

X Company
Statement of Affairs
February 23, 2009

Book Value Assets Estimated Estimated

Realizable Value Amount Available/
Free Assets

Assets pledged to fully Secured Creditors

$ 72,000 Inventory $74,000
Less: Liabilities to Fully Secured Creditors
Note Payable 68,000 $6,000
Assets Pledged to Partially Secured Creditors
245,000 Land and Building (deducted contra) $250,000
Free Assets
1,000 Cash 1,000
28,000 Investments 13,000
46,500 Accounts Receivable 32,000
4,200 Prepaid Expenses 0
75,300 Equipment 60,000
78,000 Intangibles 0 106,000
Total Free Assets/Total Est. Amount Available 112,000
Less: Unsecured Liability with Priority 24,000
Net Free Assets/ Total Amount Available for
Unsecured Liabilities without Priority 88,000
Estimated Deficiency 164,000
$550,000 $252,000

Liabilities and Equity Creditor’s Claim

Fully Secured Creditors
68,000 Note Payable (deducted contra) $68,000
Partially Secured Creditors
300,000 Note Payable 300,000
Less: Value of Pledge Assets
Land and Building 250,000 $ 50,000
Unsecured Creditors with Priority
17,000 Salaries Payable 17,000
7,000 Unpaid Payroll Taxes 7,000
Total Unsecure Creditors with
Priority (deducted contra) $ 24,000
Unsecured Creditors without Priority
127,000 Accounts Payable 127,000
75,000 Accrued Expense 75,000
Stockholder’s Equity
100,000 Common Stocks -
(144,000) Retained Earnings (Deficit) - 202,000
$550,000 Total Unsecured Creditors without Priority $252,000
Problem 2

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

Moodle Incorporated
Statement of Affairs
March 15, 2009

Book Value Assets Estimated Estimated

Realizable Value Amount Available/
Free Assets

Assets pledged to fully Secured Creditors

$52,000 Land and Building $97,500
Less: Liabilities to Fully Secured Creditors
Note Payable 91,000 $6,500
Assets Pledged to Partially Secured Creditors
18,200 Equipment (deducted contra) $24,700
Free Assets
1,300 Cash 1,300
32,500 Accounts Receivable 19,500
130,000 Inventory 42,900
19,500 Investments 27,300 91,000
Total Free Assets/Total Est. Amount Available 97,500
Less: Unsecured Liability with Priority 28,600
Net Free Assets/ Total Amount Available for
Unsecured Liabilities without Priority 68,900
Estimated Deficiency 149,500
$253,500 $218,400

Liabilities and Equity Creditor’s Claim

Fully Secured Creditors
91,000 Note Payable (deducted contra) $91,000
Partially Secured Creditors
195,000 Note Payable 195,000
Less: Value of Pledge Assets
Equipment 24,700 $170,300
Unsecured Creditors with Priority
1,300 Payroll Taxes Payable 1,300
6,500 Salaries Payable 6,500
Administrative Expenses 20,800
Total Unsecure Creditors with
Priority (deducted contra) $ 28,600
Unsecured Creditors without Priority
42,900 Accounts Payable 42,900
5,200 Advertising Payable 5,200
Stockholder’s equity
65,000 Common Stocks -
(163,800) Retained Earnings (Deficit) -
10,400 Additional Paid-in Capital - 48,100
$253,500 Total Unsecured Creditors without Priority $218,400