Chapter 6

Problem I
1. Statement of Affairs - Formal

MINER COMPANY
Statement of Affairs
May 31, 2012
Book Value Realizable
Assets Value
Assets Pledged with Fully Secured Creditors:
P 50,000 Notes Receivable P39,800
1,200 Accrued Interest Rec. 1,000 P 40,800

Notes Payable 40,000

Accrued Interest Pay. 800 40,800

119,000 Building 75,000

Note Payable 20,000
Accrued Interest Pay. 800 20,800 P 54,200

Assets Pledged with Partially Secured Creditors:

13,200 Equipment 4,200
Note Payable 10,000

Free Assets
6,000 Cash 6,000
61,000 Accounts Receivable 50,000
60,000 Inventory 30,000
1,100 Prepaid Insurance 400
8,500 Goodwill 0
Total Net Realizable Value 140,600
Liabilities having Priority – Wages 6,000
Taxes 2,400 8,400
Net Free Assets 132,200

Estimated Deficiency to Unsecured Creditors 53,600

P 320,000 P 185,800

Book Value Unsecured

Equities
Liabilities Having Priority:
P 6,000 Accrued Wages P 6,000
2,400 Taxes Payable 2,400 P 8,400

Fully Secured Creditors:

60,000 Notes Payable 60,000
1,600 Accrued Interest Payable 1,600 61,600

Partially Secured Creditors:

10,000 Note Payable 10,000
Equipment 4,200 P 5,800

Unsecured Creditors:
170,000 Accounts Payable 170,000
 10,000 Notes Payable 10,000

Stockholders’ Equity
110,000 Common Stock
( 50,000) Retained Earnings (Deficit)
P 320,000 P 185,800

2. Deficiency Statement to determine estimated deficiency to unsecured creditors:

Deficiency Account
May 31, 2012
Estimated Losses: Estimated Gains:
Accounts Receivable P 11,000 Common Stock P 110,000
Notes Receivable 10,400 Retained Earnings (50,000)
Inventory 30,000 Estimated Deficiency to
Buildings 44,000 Unsecured Creditors 53,600
Equipment 9,000
Prepaid Insurance 700
Goodwill 8,500
P113,600 P 113,600
Estimated final dividend rate to unsecured creditors is: P132,200/P185,800 = 71.15%

Problem II
1. Formal
Down Dog Corporation
Statement of Affairs
June 30, 2014

Deficiency
Account
Book Value Assets Realizable Value (Loss/Gain)
Pledged with partially secured creditors
P165,000 Equipment-net P87,000
Less: Note payable and accrued interest (96,000) P 0
Unsecured amount (See below) (9,000)

Free Assets
3,000 Cash 3,000
72,000 Accounts receivable-net 48,000 (24,000)
60,000 Inventories 72,000 12,000
Total net realizable value 123,000
Less: Priority liabilities – wages payable (45,000)
Total available for unsecured creditors 78,000
______ Estimated deficiency to unsecured creditors 30,000 ______
P300,000 P108,000 (90,000)
 Unsecured
Book Value Equities Liabilities

Priority liabilities
P 45,000 Wages payable (assumed under
P4,650 per employee) P 45,000

Partially secured creditors

96,000 Note payable and accrued interest P 96,000
Less: Equipment pledged as security (87,000) P 9,000

Unsecured creditors
72,000 Accounts payable 72,000
27,000 Rent payable 27,000

Stockholders’ equity
180,000 Capital stock 180,000
(120,000)
Retained earnings (deficit) ______ (120,000)
P300,000 P108,000 P 60,000
Estimated Deficiency P(30,000)

2. Estimated payments per dollar for unsecured creditors

Cash available P210,000
Distribution to partially secured and unsecured priority creditors:
Note payable and interest P87,000
Administrative expenses 24,000
Wages payable 45,000 (156,000)
Available to unsecured nonpriority creditors P 54,000

Note payable and interest (unsecured portion) P 9,000

Accounts payable 72,000
Rent payable 27,000
Unsecured nonpriority claims P108,000

(P54,000 / P108,000 = P0.50 per peso)

Expected recovery for each class of claims

Partially secured
Note payable and interest
Secured portion P87,000
Unsecured portion (P9,000 × 0.50) 4,500 P91,500

Unsecured priority
Administrative expenses P24,000
Wages payable 45,000 69,000

Unsecured nonpriority
Accounts payable (P72,000 × 0.50 P36,000
Rent payable (P27,000 × 0.50) 13,500 49,500
Total payments P210,000

Problem III
Realizable value of all assets (P635,000 + P300,000 + P340,000) P1,275,000
Allocated to:
Fully secured creditors (316,000)
Partially secured creditors (300,000)
 Unsecured creditors with priority (100,000)
Remainder available to general unsecured creditors P559,000

Payment rate to general unsecured creditors

(Including balance due to partially secured creditors)
P559,000 / (P1,165,000 + (P400,000 - P300,000)) 44.2%

Realizable value of assets:

Assets pledged to fully secured creditors P635,000
Assets pledged to partially secured creditors 300,000
Free assets 340,000
Total realizable value P1,275,000

Amounts to be paid to:

Fully secured creditors P316,000
Partially secured creditors [P300,000 + (0.442 × P100,000)] 344,200
Unsecured creditors with priority 100,000
General unsecured creditors (0.442 × P1,165,000) 514,800*
Total P1,275,000

*Rounded P130

Problem IV
Free Assets:
Current Assets ...................................................................................... P 35,000
Buildings and Equipment ......................................................................... 110,000
Total ............................................................................................. P145,000

Liabilities with Priority:

Administrative Expenses .......................................................................... P 20,000
Salaries Payable (only P3,000 per employee)........................................... 6,000
Income Taxes ...................................................................................... 8,000
Total ............................................................................................. P 34,000

Free Assets After Payment of Liabilities with Priority

(P145,000 – P34,000) .............................................................................. P111,000

Unsecured Liabilities
Notes Payable (in excess of value of security) ........................................ P 30,000
Accounts Payable ..................................................................................... 85,000
Bonds Payable ...................................................................................... 70,000
Total ............................................................................................. P185,000

Percentage of Unsecured Liabilities To Be Paid: P111,000/P185,000 = 60 %

Payment On Notes Payable:

Value of Security (land) ........................................................................... P 90,000
60% of Remaining P30,000 ..................................................................... 18,000
Total Collected by holders ....................................................................... P108,000

Problem V
Free Assets:
Cash ............................................................................................. P30,000
Receivables (30 percent collectible)......................................................... 15,000
Inventory ............................................................................................. 39,000
Land (value in excess of secured note:
 P120,000 – P110,000)........................................................................ 10,000
Total ............................................................................................. P94,000

Less: Liabilities with priority

Salary payable (below maximum)..................................................... (10,000)
Free assets available........................................................................... P84,000

Unsecured Liabilities:
Accounts payable...................................................................................... P90,000
Bonds payable (less secured interest in
building: P300,000 – P180,000)........................................................ 120,000
Unsecured liabilities........................................................................... P210,000

Percentage of unsecured liabilities to be paid: P84,000/P210,000 = 40%

Amounts to be paid for:

Salary payable (liability with priority to be paid
in full) ............................................................................................. P10,000
Accounts payable (unsecured—will collect 40%
of debts of P90,000)........................................................................... P36,000
Note payable (fully secured by land—will collect
entire balance)................................................................................... P110,000
Bonds payable (partially secured—will collect
P180,000 from building and 40 percent of the
remaining P120,000).......................................................................... P228,000

Problem VI
Total Total Amounts % of Total
Creditor’s Expected to be Claims Expected
Class of Creditors Claims Recovered to be Recovered
Fully secured liabilities 183,600 183,600 100.0
Partially secured liabilities 54,600 51,720 94.7
Unsecured liabilities with priority 30,810 30,810 100.0
Unsecured liabilities without priority 182,500 116,800 64.0

Problem VII
1. Total estimated proceeds P910,000
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory) P150,000
Mortgage payable and interest (from
proceeds of land and building) 320,000 470,000
Total available to unsecured claimants. P440,000
Less distributions to unsecured claims
with priority:
Wages payable P 10,000
Taxes payable 20,000 30,000
Amount available for unsecured claims P410,000

2. Unsecured portion of notes payable and

interest (P500,000 + P30,000 – P150,000) P380,000
Accounts payable 260,000
Total claims ofunsecured creditors P640,000
Dividend to Unsecured Creditors
P410,000 ÷ P640,000 = 64.1%
 3. Unsecured portion of notes payable and
Interest P380,000
Dividend on unsecured amount  64.1%
Amount received on unsecured portion P243,580
Proceeds from receivables and inventory 150,000
Total Received P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

Problem VIII
1.
WILBUR CORPORATION
STATEMENT OF AFFAIRS
DECEMBER 31, 20x4
Assets
Estimated
Amount Estimated
Estimated Available to Gain (Loss)
Current Unsecured on
Book Value Values Claims Realization
(1) Assets pledged with fully secured
creditors:
P 40,000 Accounts receivable (net) P 40,000
Less: 10% note payable and interest
38,500 P 1,500

50,000 Land P 65,000 P 15,000

110,000 Plant and equipment (net) 100,000 (10,000)
P165,000
Less: Mortgages payable and
interest (157,500) 7,500

(2) Assets pledged with partially

secured creditors:
20,000 Marketable securities P 16,000 (4,000)
Less: 10% note payable and
interest (20,800)

35,000 Inventory P 32,000 (3,000)

Less: Accounts payable (60,000)

(3) Free assets:

4,000 Cash P 4,000 4,000
35,000 Accounts receivable (net) 35,000 35,000
55,000 Inventory 50,000 50,000 (5,000)
6,000 Prepaid insurance 1,000 1,000 (5,000)
140,000 Plant and equipment (net) 60,000 60,000 (80,000)
48,000 Franchises 15,000 15,000 (33,000)

Estimated amount available P 174,000

Less: Creditors with priority (43,000)
Net available to unsecured creditors P 131,000
Estimated deficiency 45,000
P 543,000 (P 125,000)
Total unsecured debt P 176,000
 
2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43%

Problem IX

Smith Company
Statement of Realization and Liquidation
Assets
Assets to be realized Assets Realized

Old Receivebles, net P 50,000 Old Receivbles P 28,000

Marketable Securities 20,000 New Receivbles 65,000
Old Inventory 72,000 Marketable Securities 15,000
Depreciable Assets, net 120,000 Sales of Inventory 100,000

Assets Acquired Assets Not Realized

New Receivables 100,000 Old Receivables, net 22,000

New Receivables, net 35,000
Depreciable Assets 96,000

Supplementary Items
Supplementary Charges Supplementary Credits

Old Current Payables P 31,000 Net Loss P 7,000

Liabilities
Liabilities Liquidated Liabilities to be Liquidated

Old Current Payables P 31,000 Old Current Payables P 65,000

Liabilities Not Liquidated Liabilities Incurred

Old Current Payables P 34,000 ________

P433,000 P 433,000

Problem X
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20x5
Assets
Assets Cash Non-Cash
Beginning balances assigned 5/1/x5 P 4,000 P720,000
Cash Receipts:
Collection of Accounts Receivable 60,000 (70,000)
Sale of inventory 170,000 (200,000)
Sale of land and building 20,000 (340,000)
Sale of machinery 70,000 (100,000)
Cash Disbursements:
Payment of salaries payable (60,000)
Partial payment of accounts pay. (170,000)
Partial payment of bank loan (70,000)
Ending balance P24,000 P10,000
 Liabilities
Unsecured
Fully Partially With Without Owner's
Assets Secured Secured Priority Priority Equity
Beginning balances assigned 5/1/X5 P240,000 P270,000 P94,000 P0 P120,000
Cash Receipts:
Collection of Accounts Receivable (10,000)
Sale of inventory (30,000)
Sale of land and building (240,000) (80,000)
Sale of machinery (30,000)
Cash Disbursements:
Payment of salaries payable (60,000)
Partial payment of accounts pay (180,000) 10,000
Partial payment of bank loan ________ (90,000) ________ 20,000 ________
Ending balance P 0 P 0 P34,000 P30,000 P (30,000)
P 0
Multiple Choice Problems
1. d – since there is parent and subsidiary relationship, any intercompany accounts are eliminated from consolidated
point of view.

2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000 – (P4,500 +
P10,000) = P76,500 estimated amount available for unsecured, non-priority creditors; P76,500  P90,000 =
0.85]

3. c – it is a partially secured liability

4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000

5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000

6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000

7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000

8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000

9. d

10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000)

= P93,000

12. c – P93,000/P121,000 = 77% rounded.

13. a
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 – P300,000) + P600,000 = P700,000

14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000 + Liq.
expenses P40,000 = P165,000.

15. c
 Statement of Realization and Liquidation

Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000

Assets Acquired……………….. 750,000 Assets Not Realized…………… 1,375,000
Liabilities Liquidated…………. 1,875,000 Liabilities to be Liquidated…. 2,250,000
Liabilities Not Liquidated……. 1,700,000 Liabilities Assumed………….. 1,625,000
Supplementary charges/ Supplementary credits……… 2,800,000
debits……………………… 3,125,000

P 8,825,000 P 9,250,000

Net Gain……………………….. P 425,000

16. No requirement

17. c
Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000
+: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000
Total LSHE = Total Assets…………………………………………………………… P 2,700,000
-: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000
Cash balance, ending………………………………………………………………P1,325,000

18. P440,000
Total Free Assets:
Fully secured:
Land and building: P650,000 – (P300,000 + P20,000) = P 330,000
Free assets:
Cash 10,000
Equipment 100,000 P440,000

Or,
Total estimated proceeds P910,000
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory) P150,000
Mortgage payable and interest (from
proceeds of land and building) 320,000 470,000
Total available to unsecured claimants/total free P440,000

19. P410,000
Total available to unsecured claimants/total free P440,000
Less distributions to unsecured claims
with priority:
Wages payable P 10,000
Taxes payable 20,000 30,000
Amount available for unsecured
claims/net free assets P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), or

Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000) P380,000
Accounts payable 260,000
Total claims of unsecured creditors P640,000

21. 64.1%
 Dividend to unsecured creditors
P410,000 ÷ P640,000 = 64.1%

22. P320,000 = P300,000 + P20,000

23. P393,580
Unsecured portion of notes payable and
interest P380,000
Dividend on unsecured amount x 64.1%
Amount received on unsecured portion P243,580
Proceeds from receivables and inventory 150,000
Total Received P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to rounding-off)
27. P230,000
Net free assets (No. 19) P410,000
Less: Unsecured creditors without priority (No. 20) 640,000
P230,000
28. P340,000 = P910,000 – P1,250,000

29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)

30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is the formal
presentation of statement of affairs

Estimated Amt
Estimated Net Avail for Estimated Gain
Book Realizable Unsecured or (Loss)on
Value Assets Value Creditors   Liquidation
Assets pledged with fully secured
creditors:
98,500 Land and Bldg 92,800 22,200 (5,700)
5,800 Investment in Calandir 15,000 4,625 9,200
Total 107,800
Assets pledged with partially secured
creditors:
41,000 Inventory 20,000 (21,000)
43,000 Equipment 8,000 (35,000)
Free Assets:
1,850 Cash 1,850 1,850 0
21,200 Accounts Rec 17,000 17,000 (4,200)
15,000 Note Rec 15,000 15,000 0
Estimated Amount Avail for unsecured creditors with and
without priority 60,675
Less unsecured creditors with priority (3,775)
Estimated amounts for unsecured creditors without priority
(Net Free Assets):
Net Realizable Amount Avail 56,900
_______ Deficiency _______ 15,725 _______
226,350 169,650 72,625 (56,700)

Estimated Estimated Unsecured Amount

Book Liabilities Secured With Without
Value and Owners Equity Amount Priority Priority
 Fully Secured Creditors:
600 Accrued Mtg Interest 600
70,000 Mortgage Payable 70,000
375 Accrued N/P Interest 375
10,000 Note Payable 10,000
Total 80,975
Partially Secured
Creditors:
50,000 Accounts Payable 28,000 22,000
Unsecured Creditors with
Priority:
3,775 Accrued Payroll 3,775
Unsecured creditors without
Priority:
40,625 Accounts Payable 40,625
10,000 Other Accrued Liabilities _______ 10,000
185,375 Totals 108,975 3,775 72,625
40,975 Owner Equity
226,350

31. P56,900 – refer to No. 30 for computation

32. P72,625 – refer to No. for computation
33. Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation
34. P80,975 – refer to No. 30 for computation
35. P45,160 = P28,000 + (P22,000 x 78%)
36. P3,775
37. P39,487.50 = 78% x (P40,625 + P10,000)
38. P169,397.50
No. 34……………..P 80.975
No. 35…………….. 45,160
No. 36…………….. 3,775
No. 37…………….. 39,487.50
P169,397.50 (discrepancy around P250 plus due to rounding-off)

39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity
40. P56,700 – refer to No. 30 or P169,650 – P226,350
41. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)
42. P22,475
Liabilities
Unsecured
Assets Fully Partial With Without Owners'
Cash Noncash Secured Secured Priority Priority Equity
6/1/x5 Balances:
1,850 224,500 80,975 50,000 3,775 50,625 40,975

Cash Receipts:
Securities Sale 16,000 (5,800) 10,200
N/R Collected 15,000 (15,000) 0
Equipment Sale 7,000 (43,000) (36,000)
Inventory Sale 22,000 (41,000) (19,000)
Cash Disbursements:
Bank Loan (10,375) (10,375)
Part Pyt-A/P (29,000) ---------- --------- (50,000) ------- 21,000 ----------
6/30 Balance 22,475 119,700 70,600 0 3,775 71,625 (3,825)

43. P119,700 – refer to No. 42

44. P70,600 – refer to No. 42
45. None – refer to No. 42
46. P3,775 – refer to No. 42
47. P71,625 – refer to No. 42
48. (P3,825) deficit – refer to No. 42
49. P150,900
Estimated
Amount
Estimated Net Available for Estimated Gain
Realizable Unsecured or (Loss) on
Book Value Assets Value Creditor Liquidation
Assets pledged with fully secured creditors:
57,000 Accounts receivable (net) 45,000 12,600 (12,000)
174,000 Land, plant and equipment (net) 150,000 77,400 (24,000)
Total 195,000
Free assets:
6,000 Notes receivable 6,000 6,000 0
900 Accrued interest receivable 900 900 0
90,000 Inventories (90,000 x 60%) 54,000 54,000 (36,000)
Estimated amount available for unsecured
creditors with and without priority 150,900
Less unsecured creditors with priority (26,900)
Estimated amounts for unsecured creditors
without priority:
Net realizable amount available 124,000
Deficiency 26,000
327,900 Totals 255,900 150,000 (72,000)

Estimated Estimated Unsecured Amount

Secured Without
Book Value Liabilities and Owners' Equity Amount With Priority Priority
Fully secured creditors:
3,600 Accrued interest 3,600
69,000 Note payable 69,000
2,400 Accrued interest 2,400
30,000 Note payable 30,000
Total 105,000
Unsecured creditors with priority:
24,900 Wages payable 24,900
0 Administration fees – accountant’s fee 2,000
Unsecured creditors without priority:
0 Accrued interest 0
18,000 Cash overdraft 18,000
6,000 Notes payable 6,000
126,000 Accounts payable -------- -------- 126,000
279,900 Totals 105,000 26,900 150,000
48,000 Owners' equity--see Note A
327,900
Note A: Includes the effect of the P2,000 professional fee.

50. P124,000 – refer to No. 49

51. P150,000–
52. 82.67% = P124,000/P150,000
53. P105,000
54. None
55. P26,900
56. P124,005 = P150,000 x 82.67%
57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)
58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,000
59. P72,000 – refer to No. 49
60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses

Quiz - VI
1. P96,000
Claims of partially secured creditors.................................................................................. P 120,000
Current value of assets pledged with these creditors........................................................... (80,000)
Deficiency that is unsecured................................................................................................ P 40,000
Claims of other unsecured creditors................................................................................... 360,000
  Total unsecured creditors claims...................................................................................... P 400,000

Amount available to unsecured creditors:

  Excess left over after paying fully secured creditors
   (P195,000 – P150,000)..................................................................................................... P 45,000
  Current value of free assets (net of P45,000 to
   creditors with priority)..................................................................................................... 115,000
  Amount available to unsecured creditors......................................................................... P160,000

Settlement to unsecured claims per dollar (P160,000/P400,000)........................................ P   .40

Total distribution to partially secured creditors:

  Current value of assets pledged......................................................................................... P 80,000
  Deficiency of P40,000 × P.40............................................................................................ 16,000
P 96,000
2. P144,000 = P360,000 x 40%

3. P56,000
Claims of partially secured creditors.................................................................................. P 90,000
Current value of assets pledged with these creditors........................................................... (50,000)
Deficiency that is unsecured................................................................................................ P 40,000
Claims of other unsecured creditors................................................................................... 200,000
  Total unsecured creditors claims...................................................................................... P 240,000

Amount available to unsecured creditors:

  Excess left over after paying fully secured creditors
   (P300,000 – P250,000)..................................................................................................... P 50,000
  Current value of free assets (net of P60,000 to
   creditors with priority)..................................................................................................... (14,000)
  Amount available to unsecured creditors......................................................................... P 36,000

Settlement to unsecured claims per peso (P36,000/P240,000)............................................ P   .15

Total distribution to partially secured creditors:

  Current value of assets pledged......................................................................................... P 50,000
  Deficiency of P40,000 × P.15............................................................................................ 6,000
P 56,000
4. P30,000 = P200,000 x 15%
5. P35,000 = P20,000 + (P70,000 – P20,000) x 30%
6. P96,000 = Free assets P220,000 - priority claims P100,000 = P120,000
P120,000/P300,000 unsecured = payment of 40% on unsecured peso
40% x P240,000 A/P = P96,000

7. P474,000 = Land and building sold for P450,000 leaves P60,000 unsecured still owing. 40% x
P60,000 = P24,000
8. P295,000 = P200,000 + P95,000
9. P42,950 - (P10,950 + P2,000 + P20,000 + P10,000)
10. P76,050 - Excess of salaries, P1,050 + notes pay in excess of security P25,000 + accounts pay P50,000
11. P163,800
Free assets:
Other assets P104,000
Excess from assets pledged with secured
(P150,800 – P91,000) 59,800
P163,800
12. P109,200
Total free assets P163,800
Less: Liabilities with priority 54,600
P109,200
13. P364,000 
Unsecured creditors:
Excess of partially secured liabilities over
Pledged assets (P169,000 – P65,000) P104,000
Unsecured creditors 260,000
P364,000
14. P96,200
Payment of partially secured debt:
Value of pledged assets P 65,000
30%* of remaining P104,000 31,200
P 96,200
*P109,200/P364,000 = 30%

15. P78,000
Cash P 65,000
Excess of pledged with secured liabilities
(P117,000 – P104,000) 13,000
P 78,000
16. P52,000
Free assets after of liabilities with priority:
Total free assets P 78,000
Less: Liabilities with priority 26,000
P 52,000
17. P260,000
Unsecured creditors:
Excess of partially secured liabilities over
pledged assets (P195,000 – P169,000) P 26,000
Accounts payable 234,000
P 260,000
18. P174,200
Payment on bond:
Value of pledged assets P 169,000
20%* of remaining P26,000 5,200
P 174,200
Free after priority: P52,000/P260,000 = 20%

19. P247,000
Free assets P390,000
Excess from assets pledged with fully secured
(P260,000 – P195,000) 65,000
Amount available P455,000
Unsecured liabilities with priority ( 208,000)
Net free assets / available for unsecured P247,000

20. P32,000
Cash 120,000
Mortgage payable, paid in full ( 60,000 )
60,000
Note payable to bank, secured portion ( 30,000 )
30,000
Priority claims (P16,000 of administrative costs +
P2,000 of customer deposits + P4,000 property tax) ( 22,000 )
Available for unsecured nonpriority claims 8,000
Unsecured, nonpriority claims:
Unsecured portion of note payable to bank 10,000
Accounts payable 30,000
Total unsecured, nonpriority claims 40,000
P8,000 cash/P40,000 claims = P.20 on the dollar
Amount paid to bank:
P30,000 for secured portion + (P10,000 x .20) for unsecured portion =
32,000

21. P15,400
Mortgage note receivable 35,000
Less: Portion secured by equipment ( 7,000 )
Unsecured portion 28,000
Estimated recovery on secured portion 7,000
Estimated recovery on unsecured portion
(P28,000 x P.30) = 8,400
Recovery on mortgage note receivable 15,400

22.
Mortgage note receivable 80,000
Less: Portion secured by marketable securities ( 60,000 )
Unsecured portion 20,000
Estimated recovery on secured portion 60,000
Estimated recovery on unsecured portion
(20,000 x P.25) = 5,000
Recovery on mortgage note receivable 65,000
23. P30,000
Book value of assets P700,000
Net realizable of assets 370,000
P330,000
Less stockholders' equity
(P700,000 – P400,000) 300,000
Deficiency P 30,000

24. P.75 Dividend = P370,000 – P250,000 – P30,000 / P400,000 – P250,000 – P30,000

25. P8,500 = P7,000 + [(P9,000 – P7,000) x .75]
26. P410,000
Total estimated proceeds P910,000
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory) P150,000
Mortgage payable and interest (from
proceeds of land and building) 320,000 470,000
Total available to unsecured claimants. P440,000
Less distributions to unsecured claims
with priority:
Wages payable P 10,000
Taxes payable 20,000 30,000
Amount available for unsecured creditors P410,000

27. 64.10%
Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000) P380,000
Accounts payable 260,000
Total claims of unsecured creditors P640,000

Dividend to unsecured creditors:

P410,000 ÷ P640,000 = 64.1%

28. Unsecured portion of notes payable and

Interest P380,000
Dividend on unsecured amount x 64.1%
Amount received on unsecured portion P243,580
Proceeds from receivables and inventory 150,000
Total Received P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

THEORIES
1. debtor
2. P5,000
3. inability to pay debts as they mature
4. a. administrative costs
b. certain postfiling “gap” claims in involuntary filings
c. wages, salaries, and commissions
d. employee benefit plans
e. deposits by individuals
f. taxes
5. infrequent
6. two-thirds, more than one-half
7. fraudulent, preferential
8. realization and liquidation

9. False 14. False 19. False 24. c 29. b 34. b 39. b

10. False 15. True 20. False 25. a 30. b 35. d 40. c
11. False 16. True 21. c 26. d 31. b 36. b 41. b
12. True 17. True 22. a 27. c 32. a 37. c 42. a
13. False 18. True 23. a 28. e 33. c 38. a 43. c

44. a 49. c 54. d 59. a

45. c 50. d 55. c 60. c
46. c 51. a 56. d
47. a 52. d 57. b
48. b 53. b 58. a