Chapter 2

Corporate Liquidation
Problems in corporate liquidation normally require familiarization in the preparation of
statement of affairs. In the actual CPA examination, problems involving corporate liquidation
are seldom given, therefore, in terms of alternative subjects to be studied within a limited period
of time, this topic should have a relatively low priority. In preparing for the CPA examination,
fair knowledge of the principles and procedures relating to the preparation of a statement of
affairs is only required.

Statement of Affairs

Typical financial statements are prepared on a on going concern basis, which means that assets
are maintained at historical cost and expenses are expirations of historical costs. Corporation
that faces bankruptcy or liquidation is a quitting concern, not a going concern. Consequently,
statement of financial position, which reports the financial position of a going concern, is
inappropriate for a corporation in liquidation.

The financial statement designed for an insolvent corporation is the statement of affairs. It is a
statement of financial condition as of a given date presenting the assets and liabilities of the
corporation from a liquidation viewpoint. Thus, assets presented in the statement of affairs are
valued at current fair values. In addition, assets and liabilities are classified according to the
rankings and priorities; the current/non-current classification used in a balance sheet for a
going concern is not appropriate for the statement of affairs.

Accompanying a statement of affairs is a statement of realization and liquidation. This

statement shows the gains or losses on realization of assets and a list of additional costs
associated with the liquidation.

With this brief introduction in mind, candidates should analyse the following illustrative
statement of affairs in detail in order to understand the form used, the column headings, and
the general disposition of each item.

Illustration of Statement of Affairs

The explanation of the contestants of the statement of affairs is based on the following
statement of affairs for Bankrupt Corporation on December 31, 2013:
Bankrupt Corporation
Statement of affairs
December 31,2013
Book values Estimated Current Fair values Free
Assets
Assets
(1) Asset pledged to fully secured creditors
P1,000,000 Land P1,500,000
5,500,000 Building 4,000,000
Total 5,500,000
Less: Mortgage payable 5,000,000 P 500,000
(2)Assets pledged to partially secured creditors:
800,000 Marketable securities 900,000
Less: Notes payable 1,000,000
(3)Free Assets
200,000 Cash 200,000
1,800,000 Accounts receivable 1,800,000
4,500,000 Inventory 2,600,000
3,700,000 Equipment 1,200,000 5,800,000
Estimated amount available 6,300,000
Less: Creditors with priority 1,800,000
Net free assets 4,500,000
_________ Estimated deficiency to unsecured creditors 6,500,000
P17,500,000 Total unsecured creditors 11,000,000

Book Values Claims Estimated

Unsecured
creditors
Liabilities and Stocholders’ Equity
(1) Fully Accrued creditors:
P5,000,000 Mortgage Payable P5,000,000
(2) Partially secured creditors
1,000,000 Notes Payable – Partially 1,000,000
secured
Less: Marketable 900,000 P 100,000
securities
(3) Creditors with priority:
Estimated liquidation 400,000
expenses
800,000 Accrued wages 800,000
600,000 Taxes payable 600,000
1,800,000
(4)Remaining unsecured
creditors:
2,600,000 Accounts payable 2,600,000
8,300,000 Notes payable - 8,300,000
unsecured
 (_800,000 ) (5)Stockholders’ equity
P17,500,000 P11,000,00

In analyzing the statement of affairs of Bankrupt Corporation, the following should be noted:
1. The statement presents the statement of financial position account in the order of
priority for liquidation. Current versus noncurrent accounts no longer have importance
for Bankrupt Corporation.
2. The statement presents estimated current fair values as well as the book values.
3. In the statement, fully secured creditors are expected to have their entire claims of
P5,000,000 satisfied with the proceeds from the disposal of the secured asset. The
mortgage payable is expected to be fully satisfied with the proceeds of P5,500,000 from
the sale of the land and building. The remaining P500,000 will then be available to
satisfy unsecured creditors.
4. Partially secured creditors will not have their claims completely satisfied from the sale of
the collateral asset. Marketable securities having an estimated fair value of P900,000
are used to secure notes payable of P1,000,000. The first P900,000 of the notes payable
will be satisfied; the remaining P100,000 will be added to the unsecured creditors.
5. Free assets are available to unsecured creditors. The first unsecured creditors are those
with priority as defined by law. These liabilities in the order of priority are liquidation
expenses, accrued employees salaries and wages and benefits, and taxes payable to the
government.
6. All remaining claims are added to the unsecured creditors. The total of unsecured claims
is P1,100,000. Only P4,500,000 the net free assets is expected to be available to meet
claims. Therefore, the estimated settlement to unsecured creditors is (estimated
recovery) 41 centavos for each 1 peso of claims or 41%(4,500,000/11,000,000). The
estimated deficiency to unsecured creditors is P6,500,000.
7. The stockholders will not receive anything upon liquidation of the Bankrupt
Corporation. Stock is a residual claims to be settled only after all creditors claims are
fully settled. Stockholders typically do not receive anything from a bankruptcy
liquidation.

The principles used in this example are not always well-defined. This means that candidates can
adopt reasonable variations to the statement illustrated here in reflecting special situations not
included in the statement presented herein. It is clear, however, that the intended purpose of
the statement is to provide creditors with an indication of the state of their claims at a
particular point in time. Therefore, the statement of affairs should be prepared in a manner
consistent with this purpose.

Estimated Recovery by Each Creditor

Based on the statement of affairs the estimated amounts to be recovered by each creditor can
be computed as shown below:
 Creditors Claims Computation Estimated recovery
Mortgage payable P5,000,000 100% P5,000,000
Notes payable 900,000 100% 900,000
8,400,000 41% 3,444,000
Accounts payable 2,600,000 41% 1,066,000
Estimated liquidation expenses 400,000 100% 400,000
Accrue wages 800,000 100% 800,000
Taxes payable 600,000 100% 600,000
Total 18,700,000 P12,210,000
Estimated Equity (Deficit)

This is computed when assets are realized. The computation is presented below:
Estate equity,beginning Pxxx
Net gain (loss) on realization of assets (xxx)
Administrative expenses (xxx)
Estate deficit, end Pxxx

The estate equity at the beginning is the excess of the book value of the assets before
realization over the book value of the liabilities of the corporation taken over by the receiver or
trustee.

Statement of realization and liquidation

The statement shows a complete record of the transaction of the corporation in liquidation. Its
structure is similar to a T account, and it is composed of three elements: asset transactions and
income/loss transactions.

The traditional format of the statement is presented below:

ASSETS
Assets to be realized: Assets realized:
Marketable Securities P15,000 Marketable Securities P19,600
Accounts receivable 23,000 Accounts receivable 16,000
Inventory 41,000 Inventory 44,000
Prepaid expenses 3,000 Prepaid expenses -0-
Land 100,000 Land & Building 208,000
Building 110,000 Equipment 42,000
Equipment 80,000 Intangible assets -0-
Intangible assets __15,000 Dividends receivable ____500
Total P387,000 Total P330,100
Assets acquired (new) Assets not realized:
Dividends receivable P500 None

LIABILITIES
Liabilities Liquidated: Liabilities to be liquidated
Notes payable P44,000 Notes payable P75,000
Long term payable 200,000 Accounts payable 60,000
Interest payable 5,000 Accrued expenses 18,000
______ Long term notes payable 200,000
Total 249,000 Total P353,000
Liabilities not liquidated Liabilities Incurred (new)
Notes payable P31,000 Interest payable P5,000
Accounts payable 60,000
Accrued expenses 18,000
Total P109,000

INCOME OR LOSS AND SUPPLEMENTARY ITEMS

Supplementary Expenses Supplementary Revenues
Administrative expenses 24,900 Net loss 82,300
P770,400 P770,400

PROBLEMS
1. The following data were presented in the statement of affairs for BW Company
Unsecured liabilities without priority P900,000
Stockholders’ equity 360,000
Loss on realization of assets 450,000
Estimated administrative expenses that have not been recorded 45,000
Unsecured liabilities with priority 100,000

Based on the foregoing data, what percentage of their claims should unsecured, without
priority creditors expect to receive on the liquidation of BW Company?
a. 85%
b. 90%
c. 86.5%
d. 100%
2. The First Family Bank loaned P4,000,000 to Belle Corporation. The loan is secured by a
land with a book value and fair market value of P5,000,000 and P3,000,000,
respectively. What amount will the bank received if unsecured creditors received 25% of
their claims?
a. P1,000,000
b. P3,000,000
c. P3,250,000
d. P4,000,000
3. Lucky Company has filed for liquidation. The following data is available:
Free assets at net realizable value P100,000
Liabilities per books (unsecured) 160,000
Unrecorded liabilities:
Liquidation expenses 6,000
Unpaid wages with priority claim 10,000
What percentage of their claims should be unsecured creditors receive in liquidation?
a. 62.5%
b. 56.82%
c. 55.29%
d. 52.5%
4. The Abu company in liquidation provided the following data:
Assets at book value P100,000
Assets at net realizable value 75,000
Liabilities at book value 85,000
Unrecorded liabilities: Interest on bank notes 250
Liquidation expenses 4,000
Assuming the assets are sold at realizable values, what is the balances of the Estate
Equity account at the end of period?
a. P14,250
b. P15,750
c. P13,750
d. P14,000
5. When the Insolvent Company filed for bankruptcy, it prepared the following balance
sheet:
Current assets(net realizable value P500,000) P800,000
Land and building (fair market value, P2,400,000) 2,000,000
Goodwill 400,000
3,200,000
Accounts payable(unsecured) P1,600,000
Mortgage payable(secured by land and building) 2,000,000
Common stock 1,000,000
Retained Earnings(deficit) (1,400,000)
P3,200,000
What percentage of their claims will the unsecured creditors likely to get?
a. 43.75%
b. 50%
c. 56.25%
d. 100%
6. The following are the data presented by Ilocos Company:
Assets at book value P1,000,000
Assets at net realizable value 750,000
Liabilities at book value:
 Fully secured mortgage 400,000
Unsecured accounts and notes payable 450,000
Unrecorded liabilities
Interest on bank notes 2,500
Estimated administrative expenses 40,000
The Statement of Affairs at this time should include an estimated deficiency to
unsecured creditors of:
a. P350,000
b. P310,000
c. P142,500
d. P100,000
7. Sayap Company signed a note payable to its bank for P2,000,000. Accrued interest on
the note on February 29,2008 amounts to P50,000. The note is secured by inventory
with a book value of P2,300,000. The inventory is sold for P1,600,000 and unsecured
creditors receive 3% of their claims. What amount should the bank receive in settlement
of the note and interest.
a. P2,050,000
b. P2,000,000
c. P1,705,000
d. P1,600,000
8. The Rizal Company provides the following information on November 13,2011:
Office building at original cost P1,000,000
Accumulated depreciation on office building 200,000
Land at original cost 300,000
Office building and land at net realizable value 1,500,000
Mortgage payable, secured by office building and land 850,000
Interest accrued on mortgage payable to November 13,2008 5,000
No. 8 – Continued
The estimated amount available from the building and land for the settlement of
unsecured creditors is:
a. P650,000
b. P645,000
c. P500,000
d. P300,000
9. The relevant data from the record of the Down company are:
Equipment: at original cost P750,000
at book value 550,000
at net realizable value 410,000
Notes payable: Principal amount 400,000
accrued interest 12,000
On the statement of affair the equipment should be shown as:
a. An asset pledged will fully secured creditors, leaving P50,000 for unsecured
creditors
 b. An asset pledged will fully secured creditors, leaving P138,000 for unsecured
creditors
c. An asset pledged will fully secured creditors, leaving P10,000 for unsecured
creditors
d. An asset pledged will partially secured creditors, an unsecured liability of P2,000
should also be disclosed.
10. The statement of affairs for the Failed Company contained the following relevant
information:
Assets pledged with fully secured creditors P1,000,000
Assets pledged with partially secured creditors 500,000
Free assets 600,000
Liabilities with priority 100,000
Fully secured liabilities 800,000
Partially secured liabilities 750,000
Unsecured liabilities 900,000
No. 10 – Continued
All assets are stated at net realizable values. The unsecured creditors should receive
what percentage of their claims in liquidation? (Round to two decimal places).
a. 60.8%
b. 64%
c. 74.29%
d. 82.35%
11. GMA has become insolvent and a statement of affairs is being prepared. The following
data were taken from the statement of affairs:
Asset
Pledged with fully secured creditors P71,000
Pledged with partially secured creditors 12,500
Free 11,000

Liabilities
Partially secured P20,000
With priority 3,000
Fully secured 60,000
Unsecured without priority 18,0000
What is the estimated deficiency to unsecured creditors (without priority)?
a. P12,500
b. P15,500
c. P5,000
d. P6,500
Items 12 and 13 are based on the following data:
The trustee of Lugi Corporation provided the following data about the company’s financial
position:
No. 12 & 13 – Continued
Book Value Estimated Realizable Value
Cash P20,000 P20,000
Accounts Receivable – net 100,000 75,000
Inventories 150,000 70,000
Plant assets – net 250,000 260,000
Total P520,000
Preferred creditors P70,000
Accounts payable – unsecured 150,000
Notes payable – secured by 100,000
accounts receivable
Mortgage payable – secured by 200,000
all plant assets
Total P520,000
In the event of liquidation:

12. What is the estimated amount available to unsecured creditors without priority?
a. P85,000
b. P80,000
c. P95,000
d. P175,000
13. What is the estimated deficiency in the payment of creditors?
a. P175,000
b. P80,000
c. P95,000
d. P90,000
14. The following data were taken from the statement of realization and liquidation of
Bagsak Corporation for the three month period ended December 31,2013:
Assets to be realized P55,000
Assets acquired 60,000
Assets realized 70,000
Assets not realized 25,000
Liabilities to be liquidated 90,000
Liabilities assumed 30,000
Liabilities liquidated 60,000
Liabilities not liquidated 75,000
Supplementary credits 85,000
Supplementary charges 78,000
What is the net income (loss) for the period?
a. P28,900
b. P(28,000)
c. P(35,000)
d. P7,000
15. A statement of realization and liquidation has been prepared. Totals therefrom are as
follows:
Assets to be realized P80,000
 Assets acquired 40,000
Assets realized 30,000
Assets not realized 90,000
Liabilities to be liquidated 80,000
Liabilities assumed 50,000
Liabilities liquidated 100,000
Liabilities not liquidated 30,000
Supplementary credits 110,000
Supplementary charges 98,000
The ending balances of capital stock and retained earnings are P100,000 and P18,000
respectively.
How much was the ending balance of cash?
a. P35,000
b. P45,000
c. P58,000
d. P59,000
16. Manila Company filed a voluntary bankruptcy petition of June 1,2013 and the statement
of affairs reflects the following amounts:
Book value Estimated realizable
value
Assets
Assets pledged with fully secured creditor P160,000 P190,000
Assets pledged with partially secured 90,000 60,000
creditors
Free assets 200,000 140,000

Liabilities
Liabilities with priority P20,000
Fully secured creditors 130,000
Partially secured creditors 100,000
Unsecured creditors 260,000
Assume that the assets are converted into cash at the estimated realizable values and
the business is liquidated. How much is the estimated amount to be paid to unsecured
creditors?
a. P60,000
b. P90,000
c. P100,000
d. P84,000
Items 17 and 18 are based on the following data:
The following data were taken from the statement of affairs of Malakas Company:
Book Value Fair Value
Assets
Cash P6,000 P6,000
 Accounts receivable 60,000 60,000
Inventories 90,000 65,000
Land 100,000 80,000
Building (net) 220,000 160,000
Equipment (net) 250,000 100,000
Liabilities
Accounts payable P95,000
Wages payable (all have priority 9,500
Taxes payable 14,000
Notes payable (secured by receivables and 190,000
inventory
Interest on notes payable 5,000
Bonds payable (secured by 220,000
land and building)
Interest on bonds payable 11,000
No. 17 & 18 – Continued
17. What is the estimated deficiency to unsecured creditors?
a. P73,500
b. P73,000
c. P68,500
d. P68,000
18. What is the amount to be paid to partially secured creditors?
a. P163,150
b. P163,815
c. P161,043
d. P161,000
19. Maganda Corporation filed a petition for bankruptcy on March 2013. On April 10, 2013
the trustee provided the following information about the corporation’s financial affairs:
Book values Estimated realizable values
Assets
Cash P80,000 P80,000
Accounts receivable – net 400,000 300,000
Inventories 600,000 280,000
Plant asset – net 1,000,000 1,120,000

Liabilities
Liability with priority P320,000
Accounts payable - unsecured 600,000
Note payable – secured by accounts 400,000
receivable
Mortgage payable – secured 880,000
by plant assets
Compute the estimated recovery percentage of unsecured creditors:
a. 40%
 b. 86%
c. 80%
d. 83%
20. Luna company has had severe financial difficulties and is considering the possibility of
liquidation. At this time, the company has the following assets (stated at net realizable
value) and liabilities.
Assets (pledged against liabilities of P116,000
P70,000)
Assets (pledged against liabilities of 50,000
P70,000)
Other assets 80,000
Liabilities with priority 42,000
Unsecured creditors 200,000
In liquidation, how much would be paid to the partially secured creditors?
a. P130,000
b. P50,000
c. P74,000
d. P200,000
21. The following data were taken from the statement of affairs of Sweet Company.
Estimated liabilities with priority P122,500
Stockholder’s equity 441,000
Estimated liquidation expense – unrecorded 55,125
Unsecured liabilities without priority 1,102,500
Loss on realization of assets 551,250
How much is the total free assets?
a. P1,059,625
b. P937,135
c. P992,250
d. P953,575
22. The following are the data for Viagra Company before liquidation:
Stockholders’ equity, per books
Capital stock P350,000
Retained earnings (deficit) ( 54,250)
Estimated gain on realization of assets:
Land and buildings 78,750
Estimated loss on realization of assets:
Accounts receivable 23,100
Inventories 84,000
Prepaid expenses 2,100
Machinery and equipment 70,000
Goodwill 157,500
Estimated claims requiring settlement
Liquidation expenses 17,500
Contingent liabilities 26,250
 How much is the estimated deficiency to unsecured creditors?
a. P75,000
b. P5,950
c. P81,550
d. P7,350
23. A review of the assets and liabilities of the Cialis Company in bankruptcy on June 30,
discloses the following:
 A mortgage payable of P350,000 is secured by land and buildings valued at
P560,000
 Notes payable of P175,000 are secured by equipment valued at P140,000
 Assets other than those referred to, have an estimated value of P157,500
 Liabilities other than those referred to, total P420,000, which included claims
with priority of P52,500
What is the estimated deficiency to unsecured creditors?
a. P414,000
b. P402,000
c. P87,500
d. P35,000
24. The accountant of Holy Company under liquidated provided the following data:
Assets at book value P100,000
Assets at net realizable value 75,000
Liabilities at book value:
Fully secured mortgage payable 40,000
Unsecured accounts and notes payable 45,000
Unrecorded liabilities:
Interest on bank notes 250
Administrative expenses 4,000
A trustee is appointed to liquidate the company.

The entry made by the trustee to record the assets and liabilities should include estate
equity of:
a. P14,250
b. P14,000
c. P10,250
d. P10,520
25. Using the data in No. 24, what is the estimated deficiency to unsecured creditors?
a. P35,000
b. P31,000
c. P14,250
d. P10,000
 ANSWERS

1. A 6. C 11. D 16. D 21. A

2. C 7. C 12. B 17. A 22. B
3. D 8. B 13. C 18. B 23. C
4. A 9. D 14. B 19. A 24. A
5. C 10. A 15. C 20. C 25. C

SOLUTIONS AND COMPUTATIONS

1. Unsecured liabilities without priority P900,000

Stockholders’ equity 360,000
Unsecured liabilities with priority 100,000
Loss on realization of assets (450,000)
910,000
Total estimated amount available
Less: Estimated administrative expenses P45,000
Unsecured liabilities with priority 100,000 145,000
Unsecured liabilities P765,000
Percentage of claims (P765,000/P900,000) = 85%

2. Fully secured P3,000,000

Unsecured claim (P1,000,000 x 25%) 250,000
Amount received by bank P3,250,000

3. Free assets P100,000

Less: Priority claims
Liquidation expenses P6,000
Unpaid wages 10,000 16,000
Net free assets P84,000
Divided by unsecured liabilities ÷ 160,000
Recovery percentage 52.5%

4. Estate equity, beginning (P100,000 – P85,000) P15,000

Loss on realization (P75,000 – P100,000) (25,000)
Interest payable (250)
Liquidation expenses (4,000)
Estate equity, end (deficit) P(14,250)

5. Current assets at realizable value P500,000

Land and building at fair value P2,400,000
Less: Mortgage payable 2,000,000 400,000
Total realizable value P900,000
 Divided by accounts payable ÷ P1,600,000
Percentage of claims of unsecured creditors 56.25%

6. Total assets at net realizable value P750,000

Fully secured liabilities (400,000)
Priority claim: Estimated administrative expenses (40,000)
Estimated amount available 310,000
Unsecured claims (P450,000 + 2,500) (452,500)
Estimated deficiency to unsecured creditors P142,500

7. Proceeds for inventory P1,600,000

Unsecured note balance and interest at 30% 105,000
[(P300,000 + P50,000) x 30%]
Payment to bank in settlement of note and interest P1,705,000

8. Net realizable of building and land P1,500,000

Mortgage payable (850,000)
Accrued interest on mortgage payable (5,000)
Estimated amount available to unsecured creditors P645,000

9. Notes payable plus accrued interest P412,000

Net realizable value of equipment (410,000)
Unsecured liability to be disclosed P2,000

10. Assets available for unsecured creditors:

Fully secured assets P1,000,000
Liabilities thereon (800,000)
Available for unsecured creditors 200,000
Free assets P600,000
Priority liabilities 100,000 700,000
Unsecured liabilities 900,000
Partially secured liabilities 750,000
Assets pledged thereon (500,000) 250,000
Total unsecured liabilities P1,150,000
Percentage to be paid: P700,000 / P1,150,000 = 60.8%

11. Total assets available P94,500

Priority claims:
Fully secured liabilities P60,000
Liabilities with priority 3,000
Partially secured liabilities 12,500 75,500
Net amount available 19,000
Unsecured creditors
Partially secured creditors (P20,000 – P12,500) P7,500
 Without priority 18,000 25,500
Estimated deficiency P(6,500)

12. Total assets at realizable values P425,000

Priority claims:
Fully secured creditors P200,000
Preferred creditors 70,000
Secured creditors by accounts receivable 75,000 345,000
Net amount available to unsecured creditors P80,000

13. Amount available to unsecured creditors P80,000

Unsecured creditors
Notes payable (P100,000 – P75,000) P25,000
Accounts payable 150,000 175,000
Estimated deficiency P(95,000)

14. Debits:
Assets to be realized P55,000
Assets acquired 60,000
Liabilities not liquidated 75,000
Liabilities liquidated 60,000
Supplementary charges 78,000 P328,000
Credits:
Assets realized P70,000
Assets not realized 25,000
Liabilities to be liquidated 30,000
Supplementary credits 85,000 300,000
Net loss P28,000

15. Total assets at realizable values P100,000

Priority claims: 18,000
Fully secured creditors 30,000
Preferred creditors P148,000
Secured creditors by accounts receivable 90,000
Net amount available to unsecured creditors P58,000

16. Partially secured creditors:

Assets pledged P60,000
Unsecured (40,000 x 60%) 24,000
Estimated amount received P84,000

Estimated recovery percentage:

Total assets at realizable values P390,000
Less: Priority claims
 Fully secured liability P130,000
Liabilities with priority 20,000
Partially secured creditors (secured portion) 60,000 210,000
Amount available to unsecured liabilities P180,000

Unsecured creditors:
Partially secured liabilities (unsecured portion) P40,000
Unsecured creditors 260,000
Total P300,000
Estimated recovery % (P180,000 / P300,000) 60%

17. Total assets at net realizable values P471,000

Priority claims:
Fully secured creditors (P220,000 + P11,000) P231,000
Liabilities with priority (P9,500 + P14,000) 23,500
Partially secured creditors (P60,000 + P65,000) 125,000 379,500
Net amount available to unsecured creditors P91,500
Unsecured creditors
Partially secured creditors (unsecured portion) P70,000
Accounts payable 95,000 165,000
Estimated deficiency to unsecured creditors P(73,500)

18. Estimated recovery rate per No. 17 (P91,500 / P165,000) 55.45%

Estimated amount to be paid to notes payable plus interest:

Partially secured by accounts receivable and inventory P125,000
Unsecured portion (P195,000 – P125,000) x 55.45% 38,185
Total payment P163,815

19. Total assets at net realizable values P1,780,00

Priority claims:
Fully secured liabilities P880,000
Liability with priority 320,000
Notes payable (secured by accounts receivable) 300,000 1,500,000
Net free assets P280,000
Unsecured creditors
Notes payable (unsecured portion) P100,000
Accounts payable 600,000 700,000
Estimated recovery percentage (P280,000 / P700,000) 40%

20. First compute the estimated recovery rate as follows:

Other assets P80,000

Excess of assets pledged with secured creditors
 (P116,000 – P70,000) 46,000
Liabilities with priority (42,000)
Net free assets P84,000

Unsecured liabilities:
Partially secured liabilities (unsecured portion) P80,000
Unsecured creditors 200,000
Total P280,000
Estimated recovery rate (P84,000 / P280,000) 30%

Estimated payment to partially secured creditors can now be computed as follows:

Value of assets pledged P50,000

Remaining (P80,000 x 30%) 24,000
Total payment P74,000

21. Unsecured liabilities without priority P1,102,500

Loss on realization of assets 551,250
Estimated liquidation expenses - unrecorded 55,125
Stockholders’ equity (441,000)
Unsecured liabilities with priority 122,500
Total free assets P1,059,625

22. Estimated net loss on realization of assets:

Estimated gain P78,750

Estimated loss 179,200 P257,950
Estimated liquidation expenses 17,500
Contingent liabilities 26,250
Total 301,700
Stockholders’ equity 295,750
Estimated deficiency to unsecured creditors P5,950

23. Unsecured notes payable (P175,000 – P140,000) P35,000

Unsecured liabilities 420,000
Total 455,000
Free assets (P210,000 + P157,500) 367,500
Estimated deficiency to unsecured creditors P87,500

24. Net assets recorded at book value (P100,000 – P85,000) P15,000

Loss on realization (P100,000 – P75,000) (25,000)
Unrecorded liabilities and expenses (P4,000 + P250) (4,250)
Estimated equity (deficit) P(14,250)
25. Assets at realized value P75,000
Fully secured mortgage (40,000)
Estimated administrative expenses (4,000)
Free assets 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P(14,250)