Statement of Affairs

The statement of affairs is a financial statement that emphasizes liquidation values and provides
relevant information for the trustee in liquidating the debtor corporation. It also provides information
that may be useful to creditors and to the bankruptcy court.

 Debtor Corporation’s Balance Sheet at the Bankruptcy Filing Date

This presents the statement of affairs for Cam Corporation. Information for the statement is derived
from the balance sheet at the filing date and other sources, such as the following:

 appraisals of the assets’ expected liquidation values and contractual agreements with creditors.
 The mortgage payable, together with $5,000 interest payable, is secured by the land and
building.
  All accounts receivable is pledged as security for the bank loan and $2,000 interest payable. It is
expected that Cam’s assets can be converted into cash within three months.
The estimated realizable values are as follows:

 Assets pledged as security for creditor claims are offset against the estimated claims of secured
creditors in the asset section of the statement of affairs.
 Any excess of the realizable value of assets pledged over related claims is carried to the right-
hand column of the statement to indicate the amount available for unsecured creditors.
 An excess of secured creditor claims over the estimated value of assets pledged as security
indicates that these claims are only partially secured.
 The unsecured portion is shown in the liability section of the statement as an unsecured
nonpriority claim. The value of total assets available to pay unsecured creditors is estimated to
fall short by $8,000.

The trustee for Cam Corporation creates a new set of accounting records. The assets are recorded on
the trustee’s books at book values, rather than at expected realizable values, because of the subjectivity
involved in estimating realizable amounts at the time of filing.

Contra asset accounts are omitted from the trustee’s books because they are not meaningful in a
liquidation case and because it is desirable to keep the trustee accounts as simple as possible.

The following entry could be prepared to open the trustee’s books for Cam:

 Transactions and events during the first month of Cam’s trusteeship are described and journal
entries to record them in the trustee’s books are illustrated as follows:

1.A previously unrecorded utility bill for $500 is received.

Estate equity (-EE) 500
Utilities payable—new (+L) 500

2. Intangible assets are deemed worthless and are written off.

Estate equity (-EE) 6,000
Intangible assets (-A) 6,000
3. All inventory items are sold for $48,000, of which $18,000 is on account and $30,000 is in cash.
Cash (+A) 30,000
Accounts receivable—new (+A) 18,000
Estate equity (-EE) 2,000
Inventories (-A) 50,000
STATEMENT OF REALIZATION AND LIQUIDATION

A statement of realization and liquidation is an activity statement that shows progress toward the
liquidation of a debtor’s estate. It also informs the bankruptcy court and interested creditors of the
accomplishments of the trustee. The bankruptcy act does not require such a statement; instead, the act
allows the judge in a bankruptcy case to prescribe the form in which information is presented to the
court.
 Statement of Realization and Liquidation
  During September 2012 the trustee for Cam Corporation collected the $18,000 accounts
receivable,
 sold the marketable securities for $7,300,
 sold supplies (included in prepaid expenses) for $995, wrote off the remaining prepaid expenses,
and distributed cash in final liquidation of the estate.

Journal entries to record these transactions and events are as follows:

Cash (+A) 18,000

Accounts receivable—new (-A) 18,000
Collection of receivables in full.
Cash (+A) 7,300
Marketable securities (-A) 7,000
Estate equity (+EE) 300
Sale of marketable securities for cash.
Cash (+A) 995
Estate equity (-EE) 2,005
Prepaid expenses (-A) 3,000
Sale of supplies and write-off of prepaid expenses.

 The trustee’s fee is a priority claim, so it is paid in full. The remaining claims of $76,500 (all first-
rank unsecured creditors) receive 83¢ on the dollar (63,495, $76,500) in final settlement of their
claims. Entries to record the cash distributions are as follows:

Trustee’s fee payable—new (-L) 2,000

Cash (-A) 2,000
To record payment of trustee’s fee.
Accounts payable (-L) 53,950
Utilities payable—new (-L) 415
Note payable—bank (-L) 4,980
Notes payable—suppliers (-L) 4,150
Cash (-A) 63,495
To record payment of 83¢ on the dollar to the general
unsecured creditors.

 A case involving a corporation is closed when the estate is fully administered and the trustee is
dismissed. The trustee makes the following entry in closing out the Cam Corporation case:
Reference: advanced accounting by beams 11th edition