ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Corporate Liquidation

1. Mastermind Corporation is undergoing liquidation and has the following statement of

financial position as of January 1, 2022:

Assets Liabilities and Shareholders’ Equity

Cash P114,200 Salaries payable P50,000
Receivables, net 340,800 Accounts payable 108,500
Inventory 80,000 Bonds payable 400,000
Prepaid expenses 2,500 Loan payable 220,000
PPE 345,000 Note payable 80,000
Goodwill 55,000 Ordinary shares 120,000
Deficit (41,000)
Total Assets P937,500 Total LSHE P937,500

The bonds payable is secured by the PPE having book value of P345,000 and a realizable
value of P360,000. Of the accounts payable, P60,000 is secured by 25% of the receivables
which is 80% collectible. The balance in the book value of the receivables which has a
realizable value of P235,000 is used to secure the bank loan payable. The inventory has a
realizable value of P53,000. In addition to the recorded liabilities are accrued interest on
bonds payable amounting to P4,000, trustees’ expenses of P9,500 and taxes of P4,000.

What is the percentage of recovery? (use two decimal places)

How much will fully secured creditors receive?
How much is the payment to partially secured creditors?
What is the estimated deficiency?

2. The following data are provided by Martin Corporation which is undergoing liquidation:

 Total liabilities amount to P692,000. 35% is fully secured by assets amounting to

P270,000 with a market value of P250,000. 40% is partially secured by assets
amounting to P300,000 with a market value of P225,000, and the remaining balance is
unsecured.
 Total assets amount to P890,000 and has a total fair market value of P695,000.
 Unpaid income taxes amount to P35,000.
 Additional salaries payable and administrative expenses totaled P28,000

What is the percentage of recovery?

What is the amount paid to partially secured creditors?
What is the amount paid to all creditors?

3. A review of the assets and liabilities of Strand Corporation in bankruptcy on November

30,2022 discloses the following:
 A mortgage payable of P77,000 is secured by building valued at P14,000 more than
its book value of P68,000
 Notes payable of P39,000 is secured by furniture and equipment with book value of
P46,000 that is estimated to be 4/5 realizable.
 Assets other than those referred to have estimated value of P25,000, an amount
that is P6,000 above its book value.
 Liabilities other than those referred to total P31,000 which exclude claims with
priority of P8,000

Which of the following statements is true?

a. Actual recovery percentage is 66.27%
b. Total free assets is P22,000
c. Estimated deficiency is P11,200
d. Payment to partially secured creditors is P36,800

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

4. On October 31, 2022, Green Corporation’s trustee prepares a statement of affairs with the
following information:

 P77,000 cash will be received by the unsecured creditors whose claims total
P140,000
 Mr. Army, a maintenance staff of the company, has a claim of P2,625
 Green issued to Sage Company a 1-year note of P17,500 on January 1, 2022.
Nothing has been pledged to this note.
 Nordic Company holds a note of P26,250 on which interest pf P787.50 is accrued.
Equipment with book value of P24,500 has been pledged to this note. Market value
of the equipment is P28,875.
 Hunter received a 10% note of P21,000 from Green on February 1, 2022, pledged
with equipment with a fair market value of P17,500.

How much will the following receive?

a. Army
b. Sage
c. Nordic
d. Hunter

5. The following information were provided by Hibiscus Corporation undergoing liquidation:

Assets Liabilities and Equity

Cash 61,400 Accounts payable 670,000
Accounts receivable (excluding 250,000 Salaries payable 3,400
AFDA of P20,000)
Inventory 420,000 Notes payable 160,000
Prepaid expenses 40,000 Accrued interest – note 5,000
Investments 180,000 Mortgage payable 400,000
Land and Building, net 470,000 Ordinary Shares 800,000
Machinery and Equipment, net 220,000 Share premium 80,000
Goodwill 200,000 Deficit (297,000)
Total Assets 1,821,400 Total Liabilities and Equity 1,821,000

Additional information:
a. 15% of the accounts receivables is estimated to be uncollectible
b. The inventory is estimated to be sold for P340,000 excluding selling costs of P50,000
c. The investments, with realizable value of P110,000, have been pledged as security for
the notes
d. the machinery and equipment have a realizable value of P53,900
e. The mortgage payable is secured with the land and building with a realizable value of
P500,000
f. Unpaid taxes payable amount to P16,400
g. Accrued interest on the mortgage total P10,000
h. Trustee fees and other liquidating costs are estimated to be P60,000
i. Patents previously written off have a realizable value of P10,000

Requirement:

a. Total free assets

b. Net free assets
c. Estimated deficiency to unsecured creditors
d. Estimated percentage of recovery
e. Estimated payment to: fully secured creditors, partially secured, unsecured creditors
f. Estimated payment to all creditors
g. Estimated net gain or loss on asset realization
h. Estimated net loss

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

6. Optimum Corporation is in bankruptcy and is being liquidated. The trustee has converted all
assets into P120,000 cash and has prepared the following list of approved claims:

Property taxes payable 4,000

Trustee’s fees 10,000
Accounts payable 30,000
Wages payable 6,000
Customer’s deposit 2,000
Mortgage payable (secured by property
sold for P80,000) 60,000
Note payable to bank (secured by all accounts
receivable of P40,000 of which P30,000 was
collected and P10,000 were written off) 40,000

How much will the bank receive on the note payable?

7. The following data were taken from the statement of affairs for Florida Company:

Assets pledged to fully secured liabilities (fair value, 75,000) 90,000

Assets pledged to partially secured liabilities (fair value, 52,000) 74,000
Free assets (fair value, 40,000) 70,000
Unsecured liabilities with priority 7,000
Fully secured liabilities 30,000
Partially secured liabilities 60,000
Unsecured liabilities without priority 112,000

What is the estimated deficiency to unsecured creditors?

What is the estimated recovery per peso of unsecured claims?

8. The following data were taken from the statement of realization and liquidation of Pistachio
Corporation for the quarter ended June 30, 2022:

Assets to be realized 515,625

Supplementary credits 796,875
Liabilities to be liquidated 843,750
Supplementary charges 731,250
Liabilities liquidated 562,500
Assets acquired 562,500
Assets realized 656,250
Liabilities assumed 281,250
Assets not realized 234,375

The ending capital balances of capital stock and retained earnings are P648,750 and P178,500,
respectively. A net loss of P226,500 was recorded for the period.

How much is the ending balance of cash?

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 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

9. Twins Corporation is underdoing liquidation. On February 1, 2022, the following data were
available:

Cash 112,000
Accounts receivable 80,000
Merchandise inventory 160,000
Investment 26,400
Land 100,000
Building 60,000
Machinery and equipment 48,000
Accounts payable 288,000
Notes payable 244,000
Loan payable 180,000
Salaries payable 40,000
Taxes payable 8,000
Estate deficit (173,600)

During the six-month period ending July 31,2022, the trustee sold the investment for P26,000,
realized P84,000 for the accounts receivable, sold the merchandise for P152,000, and paid off
P26,000 of the bank loan and all liabilities with priority as well as administration expenses
amounting to P7,440.

Required:
a. Net loss or loss on realization
b. Cash balance on July 31, 2022

10. Mountain Company enters into bankruptcy proceedings on April 30, 2022. Its balance sheet
on that date shows:

Cash 25,000 Accounts payable 70,000

Inventory 60,000 Loan payable 150,000
Equipment 100,000 Stockholders’ equity (35,000)
Total 185,000 Total 185,000

None of the liabilities are secured. The following transactions occurred between April 30
and August 31:
 Merchandise inventory with a book value of P45,000 were sold for P30,000.
 Equipment with a book value of P40,000 was sold for P25,000
 Salaries and administrative expenses of P10,000 were accrued
 An initial payment of 30 cents per peso of indebtedness was paid to
creditors

Required:
What is the loss on realization?
What is the net loss?
What is the ending balance of cash?

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