CORPORATE LIQUIDATION

Problem 2-1
Plaza Fair Inc.

Additional information:
a. 24% of the accounts receivable is uncollectible.
b. ₱8,000 interest is receivable on the note.
c. The merchandise inventory has an estimated selling price of ₱336,000 and estimated costs to sell
of ₱8,000.
d. The prepaid assets are non-refundable.
e. The land and building is expected by the Plaza Fair Inc to be sold at a package price of ₱2,080,000
but their fair values are ₱500,000 and ₱900,000, respectively.
f. The machinery has an estimated net selling price of ₱160,000.
g. The note payable is secured by the equipment.
h. The loan payable is secured by the land and building.
i. Administrative expenses of ₱24,000 are expected to be incurred in the liquidation process.
j. The accrued expenses include accrued salaries of ₱20,000.
k. ₱12,000 interest is payable on the loan.
l. All the other liabilities are stated at their expected net settlement amounts.

Determine:
1. The total free assets and net free assets

Assets BV NRV
Cash 32,000 32,000 FA
A/R 190,000
Less: ABD 14,000 176,000 133,760 a FA
N/R 80,000 80,000 FA
Interest N/P 0 8,000 b FA
Mdse Inventory 424,000 336000-8000 328,000 c FA
Prepaid assets 8,000 0d FA
Land & Bldg 2,000,000 2,080,000 e apfsc
Machinery 300,000
Less: Acc Dep 60,000 240,000 160,000 f appsc
Total Assets 2,960,000 2,821,760

Gain/Loss on Realization: 138,240 (2,960,000 -2,821,760)

Liabilities BV NRV
Accrued Expense 176,800 156,800 j USC w/o prio
Current Income tax payable 280,000 280,000 USC w/ prio
A/P 800,000 800,000 USC w/o prio
N/P (Equipment) 240,000 160,000 PSC 80,000
L/P (L&B) 1,600,000 1,600,000
Interest - L/P 12,000 i FSC
Admin Liquidation expenses 24,000 k USC w/ prio
Accrued Salaries 20,000 j USC w/ prio
3,096,800 3,052,800

Assets ERV FA
APFSC: 2,080,000
L&B 1,612,000 468,000
less: Liab to FSC

APPSC:
Machinery 160,000

FA:
Cash 32,000
A/R 133,760
N/R 80,000
Interest N/P 8,000
Mdse Inventory 328,000
Prepaid assets - 581,760
Total FA 1,049,760 1
USC w/ prio 324,000
Net FA 725,760 2

3. The estimated deficiency to unsecured creditors should be:

Net FA - USC
311,040 725,760-1,036,800
4. The expected recovery percentage of unsecured creditors should be:

NFA/Total USC 725,760/1,036,800 0.7

5. The estimated payment to creditors should be:

Unsecured creditors
 Fully secured Partially secured With priority
1,612,000 324,000
Without priority

6. The estimated net gain or loss on asset realization should be:

Gain/Loss o 138240

7. The estimated net loss should be:

-231,040
Problem 2-2
PAL Holdings Inc

Assets BV NRV
Cash 40,000 40,000 FA
A/R, net 200,000 150,000 APPSC
MDSE inventory 300,000 140,000 FA
Plant Assets, net 500,000 560,000 APFSC
Total Assets 1,040,000 890,000

Gain/Loss on Realization: 150,000

Amount availabe to USC

Assets
APFSC: ERV FA
Plant Assets, net 560,000
less: Liab to FSC 440,000 120,000

APPSC:
N/P

FA:
Cash 40,000
Mdse Inventory 140,000
Total FA 180,000
LESS: USC w/ prio 160,000
Net FA 20,000

Determine:
 8. The amount expected to be available for unsecured claims without priority:
9. The expected recovery per peso of unsecured creditors:
10. The estimated payment to creditors:
usc w/ prio
fsc
psc
USC w/o prio usc w/o prio
USC w/ prio Total
USC w/o prio
USC w/o prio

USC w/ prio
USC w/ prio

Liabilities Creditor's Claims USC Liab

FSC:
L/P 1,600,000
Interest 12,000 1,612,000
PSC:
N/P (Equipment) 240,000
Less: APPSC 160,000 80,000

USC w/ prio
Salaries 20,000
Taxes 280,000
Liquidation exp 24,000 324,000

USC w/o prio

PSC N/P 240,000
Less: BV N/P 160,000 80,000
Accrued Expense 156,800
A/P 800,000
Total 1,036,800
 Problem 2-3
Sunfair International Group Phil., Inc.

Ordinary share capital and estate defi

Liabilities BV NRV
Liabilities for prio claims 160,000 160,000 USC W/ PRIO (to be, ac, not liq, liq, sup char)
A/P unsecured 300,000 300,000 USC W/O PRIO Assets to be realized
N/P (secured by A/R) 200,000 200,000 150,000 psc Assets acquired
M/P (secured by plant Assets 440,000 440,000 560,000 fsc Liabilities not liquidated
Total Liabilities 1,100,000 1,100,000 Liabilities liquidated
50,000 USC W/O PRIO Supplementary charges

11. The net gain (loss) for the three-m

12. The ending balance of cash accou

Liabilities Creditor's claim USC Liab
FSC: Add:
M/P 440,000 Less:
PSC:
N/P 200,000
Less: APPSC 150,000 50,000
USC w/ prio
Liab for prio claims 160,000
USC w/o prio:
PSC N/P 200,000
Less: N/P BV 200,000
A/P 300,000
Total 350,000
e for unsecured claims without priority:
nsecured creditors:

160,000
440,000
170,000
120,000
890,000
Problem 2-3
Sunfair International Group Phil., Inc.

Ordinary share capital and estate deficit totaled to ₱450,000 and ₱150,000, respectively.

Debit Credit
(to be, ac, not liq, liq, sup char) (not re, re, to be liq, assu, sup cre)
Assets to be realized 412,500 Assets not realized 412,500
Assets acquired 225,000 Assets realized 360,000
Liabilities not liquidated 510,000 Liabilities to be liquidated 675,000
Liabilities liquidated 562,500 Liabilities assumed 487,500
Supplementary charges 937,500 Supplementary credits 840,000
2,647,500 2,775,000

11. The net gain (loss) for the three-month period ending March 31, 2023 is:
(2,775,000 - 2,647,500) 127,500
12. The ending balance of cash account is:
Liabilities not liquidated 510,000
Ending equity 300,000 (450,000-150,000)
Assets not realized 412,500
Ending balance 397,500
Problem 2-4
MC Hammer Corporation

Assets
Cash
During the six-month period ending December 31, 2023: A/R
• The investment in equity security was sold for ₱52,000; MDSE Inventory
• The merchandise inventory was sold for ₱300,000 on account; Investment in equity security
• The ₱52,000 of the bank loan was settled; and Land
• The trustee incurred ₱15,000 for estate administration expense. Bldg
For the next six-month period ending June 30, 2024: Furniture and fixtures
• The trustee realized ₱420,000 of the accounts receivable;
• The land was sold for ₱176,000; Liabilities
• The furniture and fixtures were realized at a ₱16,000 discount; A/P
• Half of the notes payable were paid off; N/P
• The bank loan was fully settled; and S/P
• Administration fee of ₱12,000 was disbursed. USC w/ prio T/P
Bank Loan
TUCWIP

13. The net gain (loss) on realization and liquidation as of: Estate deficit
December 31, 2023 June 30, 2024

14. The estate deficit as of:

December 31, 2023 June 30, 2024

15. The cash balance as of:

December 31, 2023 June 30, 2024
 12/31/2023 adj Liabilities
224,000 0 224,000 A/P
160,000 160,000 N/P
320,000 300000 20,000 S/P
nt in equity security 52,800 52000 -800 T/P
196,000 -196,000 Bank Loan
120,000 -120,000 Admin Fee
and fixtures 96,000 -96,000
Estate deficit

556,000 556,000
468,000 468,000
80,000 80,000
36,000 36,000
376,000 376,000

-347,200
556,000
468,000
80,000
36,000
376,000

-347,200