CORPORATE LIQUIDATION AND

PROBLEM 4: MULTIPLE CHOICE-COMPUTATIONAL

1. A

Solution:

Unsecured creditors without priority 1,400,000

Deficiency of assets pledge to partially secured creditors 350,000
(650,000 - 300,000)
Total unsecured liabilities without priority 1,750,000

Total free assets (at realizable values) 2,880,000

Less:
Unsecured creditors with priority (480,000)
Fully secured creditors (1,050,000)
Realizable value os asset pledged to (300,000)
partially secured creditors
Total net free assets 1,050,000

2. C

Solution: (See above Computation)

CLAIM
Unsecured creditors with priority 480,000
Fully secured creditors 1,050,000
Partially secured creditors 650,000

Unsecured creditors without priority 1,400,000

Total

3. A
Solution:

ASSETS
Cash
Accounts Receivable
Inventory
Land
Building
Equipment
Total

LIABILITIES
SSS, Philhealth,
Pag-ibig Contibutions
Accounts Payable
Income Tax Payable
Note Payable
Interest Payable
Loans Payable
Interest Payable
Estimated Admin Expense
Capital Deficiency
(4,700,000 - 4,660,000)
Total

ASSETS
Assets pledged to fully secured creditors Realizable Value
Land and Building 2,300,000
Less: Loan Payable (1,200,000)
Interest Payable (70,000)

Assets pledged to partially secured creditors

Equipment, net 330,000
Less: Notes Payable (1,000,000)

Free Assets
Cash 100,000
Accounts Receivable 360,000
Inventory 780,000
Total Free Assets
 Total Free Assets 2,270,000
Less:
Total unsecured liabilities with priority (1,060,000)
Net Free Assets 1,210,000

Net Free Assets 1,210,000

Less:
Total Unsecured Liabilities without Priority (1,907,000)
Estimated Deficiency to Unsecured Creditors (697,000) (No. 3)
without Priority

4. C

Solution: (See above Computation)

Total Free Assets 2,270,000

5. A

Solution: (See above Computation)

Estimated Recovery of Unsecured = Net Free Assets

Creditors Without Priority Total Unsecured Liabilities
Without Priority

Estimated Recovery of Unsecured = 1,210,000

Creditors Without Priority 1,907,000

Estimated Recovery of Unsecured = 0.63450445726 or 63.45%

Creditors Without Priority

Partially secured creditor 1,080,000

Less:
Estimated Recovery Value (805,875)
Total Impairment Loss 274,125
6. B

Solution: (See above Computation)

(Mr. B) Unsecured creditor without priority 90,000

Multiply by: Estimated Recovery of Unsecured 63.45%
Creditors Without Priority
Estimated Recovery of Mr. B 57,105

7. C

Solution:

Unadjusted unsecured liabilities without priority 800,000

Waived Repayment by Athena Co. (100,000)
Rebate of 50,000 of Naia Co. (50,000)
Adjusted unsecured liabilities without priority 650,000

8. C

Solution:

Rainy Co. in receivership

Statement of Realization and Liquidation
For the xx months xx ended xx
ASSETS
Assets to be realized: Assets realized:
Accounts Receivable 600,000 Accounts Realized
Inventory 900,000 Inventory
Equipment 400,000 Equipment
Total 1,900,000 Total
 Assets Acquired: Assets not realized:
-- Accounts Receivable
Inventory
Total

LIABILITIES
Liabilities liquidated: Liabilities to be liquidated:
Accounts Payable 100,000 Accounts Payable
Loans Payable 1,000,000 Loans Payable
Employee Termination 80,000 Total
Benefit
Total 1,180,000 (No. 8)

Liabilities not liquidated: Liabilities Assumed:

Accounts Payable 1,500,000 Employee Termination
Employee Termination 20,000 Benefit
Benefit Total
Total 1,520,000

SUPPLMENTARY ITEMS
Supplementary Expense: Supplementary Income:
Administrative Expense 50,000 Scrap Income

Net gain during 192,000 (No. 9) Total

the period

Total 4,842,000 Total

9. A

Solution: (See above Computation)

DEBITS CREDITS
Assets to be reallized 1,900,000 1,122,000 Assets realized
Assets acquired - 510,000 Assets not realized
Liabilities liquidated 1,180,000 3,100,000 Liabilities to be liquidated
Liabilities not liquidated 1,520,000 100,000 Liabilities assumed
Supplementary expenses 50,000 10,000 Supplementary Income
 Totals 4,650,000 4,842,000
Net gain-excess 192,000
Cr. Over Dr

10. B

Solution: (See above Computation)

ESTATE DEFICIT
DEBIT CREDIT
Beginning Balance (*) 1,100,000

New Liability-employee 100,000

termination

192,000 Net gain (see above)

1,008,000 End-deficit (Debit Balance)
PORATE LIQUIDATION AND REORGANIZATION

Assets pledge to fully secured creditors

Assets pledge to partially secured creditors
Free assets
Total free assets (at realizable values)

Estimated Recovery of Unsecured = Net Free Assets

Creditors Without Priority Total Unsecured Liabilities
Without Priority

Estimated Recovery of Unsecured = 1,050,000

Creditors Without Priority 1,750,000

Estimated Recovery of Unsecured = 0.6

Creditors Without Priority or 60%

RECOVERY ESTIMATED
PRECENTAGE RECOVERY
100% 480,000
100% 1,050,000
300,000 + 510,000
(350,000 x 60%)
60% 840,000
2,880,000
 REALIZABLE
BOOK VALUE CHANGES VALUE CLASSIFICATION
100,000 - 100,000 Free Assets
600,000 x 60% 360,000 Free Assets
1,560,000 x 50% 780,000 Free Assets
800,000 sold land & 2,300,000 Assets pledged to fully secured creditors
1,200,000 building
400,000 -70,000 330,000 Assets pledged to partially secured credito
4,660,000 3,870,000

- 160,000 160,000 Unsecured liabilities with priority

1,600,000 -23k;-420k 1,157,000 Unsecured liabilities without priority

900,000 780,000 780,000 Unsecured liabilities with priority
1,000,000 - 1,000,000 Partially secured creditors
- 80,000 80,000 Partially secured creditors
1,200,000 - 1,200,000 Fully secured creditors
- 70,000 70,000 Fully secured creditors
Admin Expense - 120,000 120,000 Unsecured liabilities with priority
(40,000) (3,870,000 (697,000) (Squeeze)
- 4,660,000) -4,567,000)
4,660,000 3,870,000

Available for unsecured creditors Unsecured liabilities with priority

SSS,Philhealth,Pag-ibig contribu
Income Tax Payable
1,030,000 Estimated Admin Expense
Total Unsecured Liabilities with Priority

Fully secured creditors

0 Loan Payable
Interest Payable

Partially secured creditors

1,240,000 Notes Payable
2,270,000 Interest Payable
(No. 4) Less: Equipment, net

Unsecured liabilities without priority

Accounts Payable
Total Unsecured Liabilities without Priorit

RECOVERY
CLAIM PRECENTAGE
Unsecured creditors with priority 1,060,000 100%
Fullly secured creditor 1,270,000 100%
Partially secured creditor 1,080,000 330,000 +
(750,000 x 63.45%)
Unsecured creditors without priority 1,157,000 0.6345
Total
Estimated Recovery of Unsecured = Net Free Assets
Creditors Without Priority Total Unsecured Liabilities
Without Priority

Estimated Recovery of Unsecured = 520,000

Creditors Without Priority 650,000

Estimated Recovery of Unsecured = 0.8 or 80%

Creditors Without Priority

JOURNAL ENTRIES

The entry in the books of receiver to record the transfer of custody over assets and liabiliti

DEBIT CREDIT
Cash 100,000
432,000 Accounts Receivable 600,000 (*) (2,000,000 - 3,100,000)
360,000 Inventory 900,000
330,000 Equipment 400,000
1,122,000 Estate Deficit 1100000 (*)
Accounts Payable 1,500,000
 Loans Payable 1,600,000

60,000
450,000 Journal entries (book of the receiver):
510,000

DEBIT CREDIT
a. Cash 432,000
o be liquidated: Estate Deficit 108,000
1,600,000 Accounts Receivable 540,000
1,500,000 b. Cash 60,000
3,100,000 Accounts Receivable 60,000
c. Cash 360,000
Estate Deficit 90,000
Inventory 450,000
d. Cash 270,000
Estate Deficit 180,000
100,000 Inventory 450,000
e. Cash 330,000
100,000 Repair Cost 50,000
Estate Deficit 20,000
Equipment 400,000
f. Accounts Payable 100,000
Cash 100,000
ntary Income: g. Employee Benefit 100,000
10,000 Estate Deficit 20,000
Cash 80,000
10,000 h. Loans Payable 1,500,000
Estate Deficit 500,000
Cash 1,000,000
4,842,000 i. Administrative Expense 50,000
Cash 50,000
j. Cash 10,000
Scrap Materials 10,000

to be liquidated

ntary Income
(Debit Balance)
 1,300,000
300,000
1,280,000
2,880,000

nsecured Liabilities
 fully secured creditors

partially secured creditors

es with priority

es without priority
es with priority

es with priority

LIABILITIES
ties with priority Secured and Priority claims Unsecured liabilities without prio
lhealth,Pag-ibig contributions 160,000
e Tax Payable 780,000
ted Admin Expense 120,000
iabilities with Priority 1,060,000

1,200,000
70,000
1,270,000

1,000,000
80,000
 (330,000) 750,000

ties without priority

1,157,000 1,157,000
Liabilities without Priority 1,907,000

ESTIMATED
RECOVERY
1,060,000
1,270,000
805,875
0 x 63.45%)
734,125
3,870,000
y over assets and liabilities

00,000 - 3,100,000)
d liabilities without priority