Name: ________________________ Class: ___________________ Date: __________ ID: A

Corporate Liquidation

True/False
Indicate whether the statement is true or false.

____ 1. There is an implicit relationship that exists between assets pledged to fully secured creditors and free assets.

____ 2. The estimated recovery percentage is not necessary in computing the amount of cash to be paid in
settlement to unsecured priority creditors.

____ 3. The beginning balance of estate equity in the statement of affairs is the book value of the stockholder’s
equity before realization and liquidation.

____ 4. The ending balance of estate equity in the statement of affairs is the book value of the stockholder’s equity
before realization and liquidation.

____ 5. The NRV of a collateralized non-cash asset is received in full by the fully secured creditors as settlement.

____ 6. The portion of the NRV, to the extent of the underlying amount of obligation, of a collateralized non-cash
asset is received in full by the fully secured creditors as settlement.

____ 7. Under corporate liquidation, the book value of the assets to be realized into cash is not relevant in terms of
settlement.

____ 8. Under corporate liquidation, the amount to be recovered by the partially secured creditors is equal to the
NRV of the collateralized asset plus an amount based on the estimated recovery percentage.

____ 9. Partially secured creditors expect to receive only the net realizable value of the collateralized asset in
payment, the value of which is higher than the total amount of the claim.

____ 10. The effect of a gain on realization is an increase on the estate equity on the right side of the statement of
affairs.

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Name: ________________________ ID: A

Problem

Archfiend Company (Preparation of Statement of Realization and Liquidation)

The following data are taken from the Statement of Affairs of Archfiend Company as of September 01,
2018:

Book Value Net Realizable

Value
Assets Pledged to Fully Secured Claims
Accounts Receivable P 10,000 P 8,000
Inventory 50,000 32,000
Trading Securities 40,000 50,000
Building 350,000 400,000
Assets Pledged to Partially Secured Claims
Land 700,000 634,000
Inventory 20,000 6,000
Free Assets
Cash 25,000 25,000
Inventory 30,000 25,000
Equipment 100,000 75,000

Fully Secured Claims

A/P - secured by A/R, Invty., Trading Sec. 75,000
Long-term Bank Loan - secured by Bldg. 200,000
Partially Secured Claims
Mortgage Payable -secured by Land 800,000
Note Payable - secured by Invty. 20,000
Unsecured with Priority 50,000
Unsecured without Priority 1,200,000

Actual transactions that transpired for the month ended September 30, 2018 are as follows:
1. All the noncash assets were sold at their net realizable values.
2. The fully secured accounts payable and mortgage were paid.
3. The priority claims were paid.
4. Partial payment was made to the Mortgage Payable, using the proceeds from the sale of the
land.

In preparing a Statement of Realization and Liquidation, determine the amounts for each of the following:

11. Non-cash Assets, Sept. 01, 2018

12. Equity Balance, Sept. 01, 2018

13. Total cash receipts from the sale of the noncash assets

14. Net Gain or Loss on Realization

15. The decrease in the Partially Secured Claims as a result of the partial payment for Mortgage Payable

16. Cash, Sept. 30, 2018

17. Total Assets, Sept. 30, 2018

18. Partially Secured Claims, Sept. 30, 2018

19. Unsecured Non-Priority Claims, Sept. 30, 2018

20. Equity Balance, Sept. 30, 2018

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 ID: A

Corporate Liquidation
Answer Section

TRUE/FALSE

1. ANS: T PTS: 1
2. ANS: T PTS: 1
3. ANS: T PTS: 1
4. ANS: F PTS: 1
5. ANS: F PTS: 1
6. ANS: T PTS: 1
7. ANS: T PTS: 1
8. ANS: T PTS: 1
9. ANS: F PTS: 1
10. ANS: T PTS: 1

PROBLEM

11. ANS:
P1,300,000 = Book Values

PTS: 1
12. ANS:
P(1,020,000) or estate deficit

PTS: 1
13. ANS:
P1,230,000 = NRV of the non cash assets

PTS: 1
14. ANS:
P70,000 Loss

PTS: 1
15. ANS:
(P800,000) - full amount of liab paid

PTS: 1
16. ANS:
P296,000

PTS: 1
17. ANS:
P296,000

PTS: 1
18. ANS:
P20,000

PTS: 1
19. ANS:
P1,366,000

PTS: 1

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 ID: A

20. ANS:
(P1,090,000) or deficit

PTS: 1