4

22. Port Corporation is a parent, having purchased 80% of Sand Company's common stock at par value for
$800,000. Sand Company is in financial difficulty. The parent granted an unsecured loan of $400,000
to the subsidiary. An accounting statement of affairs for Sand Company shows a dividend of 40%. Port
Corporation can expect to receive payment for its investment in Sand Company of approximately
____.
a. $640,000
b. $320,000
c. $160,000
d. $0
ANS: D DIF: M OBJ: 21-4

23. The Statement of Realization and Liquidation differs from the Statement of Affairs because
a. The Statement of Realization and Affairs reports estimated realizable values rather than
actual liquidation results
b. The Statement of Realization and Affairs is a summary of secured debt activity only
c. The Statement of Realization and Affairs is prepared only at final completion of the
liquidation process
d. The Statement of Realization and Affairs reports actual liquidation results rather than
estimated realizable values
ANS: D DIF: E OBJ: 21-5

24. Equipment with a book values of $120,000 is sold in a liquidation process for cash of $110,000. This
equipment was security for a $150,000 bank loan. Any remainder is consider unsecured, class 7. How
would this transaction be reported on the Statement of Realization and Liquidation?
a. A reduction in non-cash assets of $120,000
b. A loss reported to owner's equity of $10,000
c. A disbursement of cash to the bank of $110,000, a reduction in partially secured liability
of $150,000, and an increase in unsecured without priority liability of $40,000
d. all of the above would occur
ANS: D DIF: M OBJ: 21-5

25. Tonya Fox has been appointed trustee under a Chapter 11 reorganization of Hen Corporation. The
trustee has decided to open a new set of records for the period of trusteeship. Which of the following is
true?
a. Fox will transfer all assets and all liabilities at market values
b. Fox will transfer all assets and all liabilities at book values
c. Fox will transfer all assets at market values, but all liabilities at book values.
d. Fox will transfer only those assets accepted at their book values, but will transfer no
liabilities.
ANS: D DIF: M OBJ: 21-2

26. John Shark has been appointed trustee under a Chapter 11 reorganization of Fishe Corporation. The
trustee has decided to open a new set of records for the period of trusteeship. Which of the following
accounts would Shark credit when the assets transferred are recorded on the trustee's books?
a. Fishe Corporation in Trusteeship
b. Assets Transferred for Lyon Corporation
c. Assets to Be Realized
d. John Shark, Trustee

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