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Multiple Choices Questions

1. Philippine National Bank holds a P500,000 note secured by a building owned by


Luigi Software, which has filed bankruptcy. If the property has a book value of
P600,000 and a fair market value of P450,000, what is the best way to describe the
notes held by Philippine National Bank? The bank has
a. A secured claim of P500,000
b. An unsecured claim of P500,000
c. A secured claim of P450,000 and an unsecured claim of P50,000
d. A secured claim of P50,000 and an unsecured claim of P50,000

2. X and Y Inc. owes the Xylo Corporation P60,000 on account, which is secured by
accounts receivable with a book value of P50,000. The unsecured portion is
considered claim under the bankruptcy law, X and y has filed for bankruptcy. It’s the
statement opf affairs lists the accounts receivable securing the Xylo account with an
estimated realizable value of P45,000. If the dividend to general unsecured creditors
is 80%, how much can Xylo expect to receive?
a. P 60,000 c. P57,000
b. 58,000 d. 48,000

3. 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 an
unsecured loan of P200,000 to the subsidiary. An accounting statement affairs for S
Company shows a dividend of 30%. P Corporation can expect to receive on the loan
of appropriately:
a. P120,000 c.P36,000
b. P 60,000 d. P 0

4. P Corporation is a parent, having purchased 60% of S Company’s stock at par


value for P600,000. S Company is in financial difficulty. The parent granted as
unsecured loan of P200,000 to the dividend 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. P 0

5. Kent, Inc. has forced into bankruptcy and has begun to liquidate. Unsecured
claims will be paid at the rate of 40 cents on the peso. Apex Co. holds a non-
interest bearing note receivable from Kent in the amount of P100,000,
collateralized by machinery with a liquidation value of P25,000. The total amount
realized by Apex in this note receivable is:
a. P25,000 c. P55,000
b. P40,000 d. P65,000

6. Seco Corporation was forced into bankruptcy and is in the process of liquidating
assets and paying claims. Unsecured claims will be paid at the rate of forty cents
on the peso. Hale holds a P30,000 non-interest bearing note receivable from Seco
collateralized by an asset with the book value of P35,000 and a liquidation value
of P5,000. The amount to be realized by Hale on this note is
a. P5,000 c. P15,000
b. P12,000 d. P17,000

7. Blueprint, Inc. signed note payable to its bank for P100,000. Accrued interest on
the note on February 28,2004 amounts of P250. The note is secured by inventory
with a book value of P12,000. The inventory is sold for P8,000 and unsecured
creditors received 30% of their claims. The bank should receive the following
amount in settlement of the note and interest:
a. P10,250 c. P8,675
b. P10,000 d. P8,000

8. The trust for Ardolio, Inc. prepares a 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 the creditors.
 Michael is an employee who is owed P750.
 Meldan holds a note for P1,000 on which interest of P50 is accrued;
nothing has been pledged on the note
 Compboy holds a note for 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
property with a book value of P2,000 and a present market value of
P3,000 is pledged on the note.

How much may each of the following creditors hope to receive?

Michael Meldan Compboy Serpor


a. P0 P0 P0 P0
b. 90 0 6,300 2,390
c. 350 1,050 5,780 0
d. 750 630 5,780 2,650

9. Erap Co. filed a voluntary bankruptcy petition on August 15,2008, and the
statement of affairs reflects the following amounts:

Book Value Estimated Current


Value
Assets:
Assets pledged with fully secured creditors P300,000 P370,000
Assets pledged with partially secured
Creditors ……………………........ 180,000 120,000
Free assets………………………………... 420,000 320,000
P 900,000 P 810,000
Liabilities:
Liabilities with priority…………………. P 70,000
Fully secured creditors…………………. 260,000
Partially secured creditors ……………… 200,000
Unsecured creditors…………………….. 540,000
P 1,070,000

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

10. Zamora and Co., Inc. purchased a Cadillac automobile with a little cash down and
signed a note, secured by the Caddillac, 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. P240,000 c. P320,000
b. 280,000 d. 360,000

11. The following data are provided by the Troubled Company:

Assets at book Value………………………………. P150,000


Assets at net realizable value………………………. 105,000
Liabilities at book value:
Fully secured mortgage…………………….. 60,000
Unsecured accounts and notes payable ……. 70,000
Unrecorded liabilities:
Interest on bank notes………………………. 50,000
Estimated cost of administering estate……... 6,000,000

The court has appointed a trustee to liquidate the company.

The journal entry made by the trustee to record the assets and liabilities
should include an estate deficit of:
a. P31,500 c. P25,500
b. 31,000 d. 25,000

12. Using the same information in no. 11. the statement of affairs prepared by the
trustee at this time should include an estimated deficiency to unsecured creditors
of:
a. P45,000 c. P31,500
b. 39,000 d. 25,000
13. Nah Lugi Co., is in bankruptcy and is being liquidated by a court-appointed
trustee. The financial report that follow was prepared by the trustee just before the
final cash distribution:

Assets:
Cash …………………………….. P 100,000

Approved claims:
Mortgage payable (secured by property
That was sold for P 50,000)………….. P 80,000
Accounts payable, unsecured …………………. 50,000
Administrative expenses payable,
Unsecured……………………………… 8,000
Salaries payable, unsecured……………………. 2,000
P 140,000

The administrative expenses are for trustees and other costs of administering the
debtor corporation’s estate.

How should the P100,000 be distributed to the following creditors?

Unsecured Partially Unsecured


Creditors Secured Creditors
with Priority Creditors without Priority
a. P0 P 80,000 P20,000
b. 10,000 80,000 10,000
c. 5,000 65,000 25,000
d. 10,000 65,000 25,000

14. On December 18, 2008, the statement of affairs of Downside Company, which is
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 liabilities ………………………………. 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 w/o Priority
a. P80,000 P60,000 P50,000 P70,000
b. 64,000 60,000 48,000 88,000
c. 80,000 48,000 60,000 72,000
d. 80,000 60,000 48,000 72,000

15. Amounts related to the statement of affairs of Windup Company, in a bankruptcy


liquidation as April 1, 2008, were as follows:

Assets pledged for fully secured liabilities ……………… P80,000


Assets pledged for partially secured liabilities…………… 50,000
Free Assets……………………………………………….. 272,000
Fully secured liabilities ………………………………….. 60,000
Partially secured liabilities ………………………………. 80,000
Unsecured liabilities with priority ………………………. 40,000
Unsecured liabilities w/o priority ……………………….. 330,000

Compute the: (1) total estimated deficiency to unsecured creditors, and (2) the
costs per peso that unsecured creditors may expect to receive from Windup
Company.
a. (1) P 78,000; (2) P.76 c. (1) P108,000;(2) P.81
b. (1) P108,000; (2) P.70 d. (1) P158,000; (2) P.61

16. The following data were taken from the statement of affairs for Liquo Company:

Assets pledged for fully secured liabilities


(fair value, P75,000) ……………………………… P 90,000
Assets pledged to partially secured liabilities
(fair value, P52,000)………………………………. 74,000
Free assets (fair value, P40,000)…………………………... 70,000
Unsecured liabilities w/ priority …………………………... 7,000
Fully secured liabilities …………………………………… 30,000
Partially secured liabilities ………………………………... 60,000
Unsecured liabilities w/o priority …………………………. 112,000

Compute the; (1) total estimated deficiency to unsecured creditors, and (2) the
expected recovery per peso of unsecured per peso of unsecured claims.
a. (1) 42,000; (2) P.65 c. (1) P 0; (2) P 1.00
b. (1) 3,000; (2) P .98 d. (1) P42,000; (2) P .70

17. Katherine, a CPA, has prepared a statement of affairs. Assets which there are no
claims or liens are expected to produce P70,000, which must be allocated to
unsecured claims of all classes totaling P105,000. The following are some of the
claims outstanding:

1. Accounting fees for Katherine, P1,500.


2. An unrecorded note for P1,000, on which P60 of interest has accrued, held by
Angie.
3. A note for P3,000 secured by P4,000 receivables, estimated to be 605 collectible
held by Joy.
4. A P1,500 note, on which P30 of interest has accrued, held by Joyots. Property
with a book value of P1,000 and a market value of P1,800 is pledged to guarantee
payment of principal and interest.
5. Unpaid income taxes of P3,500.

Compute the estimated payment to partially secured creditors:


a. P1,060 c. P2,490
b. P1,950 d. P2,790

18. The creditors if the Rogerod Corporation agreed to liquidation based on the
statement of affairs, suggested that unsecured creditors, without priority would
receive approximately P.60 on the peso. The unsecured creditors are interested in
determining whether the preliminary estimate still seems appropriate. The trustee
was originally assigned noncash assets of P1,480,000 and creditors claims as
follows: fully secured,P670,000; partially secured, P400,000; unsecured with
priority, P200,000, and unsecured without priority, P320,000. Assets with a total
book 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 P280,000 were paid. Remaining
liquidation expenses were estimated to be P30,000.

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 receive by unsecured


creditors without priority:
a. 100.00%
b. 66.17%
c. 45.97%
d. Cannot be determined

19. Palubog Co. is insolvent and its statement of affairs shows the following
information:
Estimate gains on realization of assets …………………. P1,440,000
Estimated losses on realization of assets ……………….. 2,000,000
Additional assets ……………………………………….. 1,280,000
Additional liabilities ……………………………………. 960,000
Capital Stock …………………………………………… 2,000,000
Deficit ………………………………………………….. 1,200,000

The deficiency pro-rate on the peso to stockholders is :


a. P.30
b. P.43
c. P.57
d. P.70

20. Zero Na Corp. has been undergoing liquidation since January 1. As of March 31,
its condensed statement of realization is presented below:

Assets:
Assets to be realized ………………………. P1,375,000
Assets acquired …………………………….. 750,000
Assets realized ……………………………... 1,200,000
Assets not realized …………………………. 1,375,000

Liabilities:
Liabilities liquidated ……………………….. P1,875,000
Liabilities not liquidated ……………………. 1,700,000
Liabilities to be liquidated ………………….. 2,250,000
Liabilities assumed …………………………. 1,625,000

Revenues and Expenses:


Supplementary charges …………………….. P3,125,000
Supplementary credits ……………………… 2,800,000

The net gain (loss) for three months period ending March 31 is:
a. P250,000
b. (325,000)
c. P425,000
d. P750,000

Items 21 through 33 are based on the following data:

The Palubog Company has decided to seek liquidation after previous restructuring
and quasi-reorganization attempts failed. The company has the following condensed
balance sheet as May 1, 2008:
Assets Liabilities and Stockholder’s Equity
Cash ……… …………... P120,000 Accrued payroll …………….P40,000
Receivables (net)………. P280,000 Loans from officer …………. 50,000
Inventory ……………… 70,000 Accounts payable …………… 60,000
Prepaid expenses ……… 1,000 Equipment loan payable ……. 360,000
Plant assets ……………. 300,000 Business loan payable ………. 180,000
Goodwill ……………… 39,000 Common Stock ……………….60,000
Deficit ………………………. (48,000)
Total…………… P702,000 Total …………… P702,000

The equipment loan payable is secured by specific plat assets having a book value of
P300,000 and a realizable value of P350,000. Of the accounts payable, P40,000 is
secured by inventory which has cost of P40,000 and a liquidation value of P44,000. The
balance of the inventory has a realizable value of P32,000. Receivables with a book value
and market value of P100,000 and P80,000 respectively have been pledge as collateral on
the business loan payable. The balance of the receivables have a realizable value of
P150,000.

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.
a. Accrued payroll
b. Equipment loan payable
c. Loan from officer
d. Business loan payable

22. The realizable value of assets pledge with fully secured creditors is:
a. P459,000
b. 44,000
c. 40,000
d. 489,000

23. Of those creditors who are partially secured, their unsecured amounts are:
a. P430,000
b. 110,000
c. 540,000
d. 120,000

24. The total realizable value of free assets to unsecured creditors before unsecured
creditors with priority is:
a. P628,000
b. 232,000
c. 220,000
d. 198,000

25. The dividend to unsecured creditors or the expected recovery percentage of


unsecured creditors (rounded) is :
a. 90%
b. 100%
c. 88%
d. 76%

26. Estimated deficiency to unsecured creditors is :


a. P -0-
b. 22,000
c. 2,000
d. 12,000

27. Estimated loss as asset disposition is :


a. P51,000
b. 89,000
c. 51,000
d. 90,000

28. Estimated gain as asset disposition is:


a. P56,000
b. 54,000
c. 52,000
d. 6,000

29. Estimated amount paid to unsecured creditors with priority is :


a. P10,000
b. 30,000
c. 40,000
d. 110,000

30. Estimated amount paid to fully secured creditors is:


a. P40,000
b. 390,000
c. 470,000
d. 430,000

31. Estimated amount paid to unsecured creditors without priority is :


a. P70,000
b. 61,600
c. 20,000
d. 50,000

32. Estimated payment to partially secured creditors is :


a. P358,800
b. 516,800
c. 168,000
d. 430,000
33. Estimated payment to creditors is (discrepancy is expected due to rounding off).
a. P580,000
b. 659,600
c. 571,000
d. 668,400