CA51027

CORPORATE LIQUIDATION

Problem 1. The GCI Corporation is undergoing liquidation and has the

following condensed Statement of Financial Position as of January 1, 2022:
Assets Liabilities & Shareholders’ Equity
Cash P 913,600 Salaries Payable P 400,000
Receivables 2,726,400 Accounts Payable 868,000
Inventory 640,000 Mortgage Payable 3,200,000
Prepaid Expenses 20,000 Loan Payable 1,760,000
Building (net) 2,760,000 Note Payable 640,000
Goodwill 440,000 Ordinary shares 960,000
Deficit (328,000)
_________ _________
Total Assets P7,500,000 P7,500,000

The mortgage payable is secured by the building having an estimated realizable value of
P2,880,000. Accounts payable amounting to P480,000 is secured by the receivables
amounting to P681,600 which is estimated to be collectible in the amount of P545,280.
The balance in the recorded amount of the receivables which has an estimated realizable
value of P1,880,000 is used to secure the loan payable. The inventory is estimated to be
sold in the amount of P424,000. In addition to the recorded liabilities are accrued interest
on mortgage payable amounting to P32,000, liquidation expenses amounting to P76,000
and taxes amounting to 32,000. (use two decimal places for the recovery percentage Ex:
71.25%)

Which of the following statements is WRONG?

a. The estimated deficiency to unsecured creditors is P365,120.
b. Estimated payment to partially secured creditors is P3,138,861.
c. Estimated payment to unsecured creditors without priority is P755,991.
d. Estimated loss on asset realization is P857,120.
Solution: SOFA

Free Assets Unsecured Liabilities(w/o)

Not Pledged: Without Priority:(no collateral)

Cash P913,600 Accounts Payable P388,000
Inventory 424,000 Notes Payable 640,000

Free Portion: Unsecured Portion:

Acc Rec (Acc Pay) 65,280 Mortgage Payable &
Acc Rec (Loans Pay) 120,000 Related Interest 352,000

Total Free Asset P1,522,880

Less: With Priority

1.Liquidation Expenses ( 76,000)
2.Salary Payable ( 400,000)
3.Taxes Payable ( 32,000)

Net Free Assets P1,014,880 Total Unsecured (w/0) P1,380,000

Estimated Deficiency to Unsecured creditors P365,120

Expected Recovery % 73.54% P1: .74

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Estimated Payment to:

Fully Secured Liabilities

Accounts Payable P 480,000

Loans Payable 1,760,000 P2,240,000 100%

Partially Secured Liabilities

Mortgage Payable & Related Interest P 3,232,000

Less: Building (2,880,000) 1:1
Unsecured Portion 352,000
x 73.54%
258,861
+ 2,880,000 P3,138,861 3,232,000=
97.12%

Unsecured Liabilities with Priority

Liquidation Expenses P 76,000

Salary Payable 400,000
Taxes Payable 32,000 P 508,000 100%

Unsecured Liabilities without Priority

Accounts Payable P 388,000
Notes Payable 640,000
P1,028,000
x 73.54% P 755,991 73.54%

Estimated Gain/ (Loss) on Asset Realization

Recorded Amount Estimated Realizable Amount Est Gain/(Loss)
Receivables P 2,726,400 P2,425,280 P(301,120)
Inventory 640,000 424,000 (216,000)
Prepaid Expenses 20,000 0 ( 20,000)
Building (net) 2,760,000 2,880,000 120,000
Goodwill 440,000 0 (440,000)
Estimated Loss on Asset Realization P(977,120)
Estimated Gain on Asset Realization 120,000

estimated net loss/gain (857,120)

Problem 2. The following information are related to VMR Corporation which
is undergoing liquidation:
a. Cash available prior to liquidation amounts to P95,200.
b. Building with a carrying amount of P1,032,000 is expected to be sold at P792,000.
c. Bonds payable amounting to P588,800 is secured by Merchandise Inventory with
book value of P984,000 and estimated realizable value of 2/3 of the recorded amount.
656,000

d. Of the P1,564,800 accounts payable, P440,000 is secured by an equipment with a

carrying amount of P614,400 which is estimated to be 70% realizable. 430,080

e. Other unrecorded liabilities are accrued interest payable on bonds, P24,800;

salaries payable, P139,200; taxes payable, P92,800; and trustee’s fee, P68,000.

f. Total assets of VMR Corp. presented in the Statement of Financial Position prior
to liquidation amounts to P3,840,000, including prepaid expenses and goodwill with
recorded amounts of P60,800 and P176,000, respectively which are not expected to be
realized. Remaining non-cash assets other than those whose realizable values were
mentioned above have an estimated realizable value of 60% of the recorded amount.
g. Total liabilities of VMR Corp. presented in the Statement of Financial Position
prior to liquidation amounts to P3,040,000.

Compute the estimated deficiency to unsecured liabilities.

a. 413,568
b. 864,960
c. 960,160
d. 540,160
Solution:
Free Assets Unsecured Liabilities
Not Pledged: Without Priority: (Nothing was pledged)
Cash P 95,200 (a) Accounts Payable P1,124,800 (d)
Building 792,000 (b) Others 886,400 (g)
Others 526,560 (f) (3,040,000-588,800-1,564,800)
(3,840,000-95,200-1,032,000-984,000
-614,400-60,800-176,000)=877,600 x 60%= 526,560

Free Portion: Unsecured Portion:

Inventory P 42,400 (c) Accounts Payable 9,920 (d)

Total Free P1,456,160

Less: With Priority

Liquidation Expenses ( 68,000)
Salary Payable ( 139,200)
Taxes Payable ( 92,800)
Net Free P1,156,160 Total Unsecured P2,021,120

Estimated Deficiency P864,960

Expected Recovery % 57.20%
SORAL --- PERIODIC REPORT---ESTATE DEFICIT

DEBIT CREDIT

1. ASSETS TO BE REALIZED 1. ASSETS REALIZED

2. INCREASE IN ASSETS 2. ASSETS NOT REALIZED

3. LIAB LIQUIDATED 3. LIAB to BE LIQUIDATED

4. LIAB NOT LIQUIDATED 4. INCREASE IN LIAB

5. SUPPLEMENTARY CHARGES 5. SUPPLEMENTARY CREDIT

TOTAL DEBITS> TOTAL CREDITS = net loss

TOTAL DEBITS<TOTAL CREDITS= net income
Problem 3. CIG Corporation provided the following balances on October 1,
2022: STATEMENT OF FINANCIAL POSITION
Cash 807,500 Accounts payable 400,000
Accounts receivable 150,000 Wages payable 125,000
Inventories 425,000 Tax payable 75,000
Notes receivable 300,000 Note payable 400,000
Equipment 210,000 Mortgage payable 750,000
Furniture 130,000 Share capital 750,000
Machinery 200,000 Deficit/(RE) (277,500)

Total 2,222,500 Total 2,222,500

In the Statement of Realization and Liquidation the following data were ascertained for
the month of October:

▪ Interests not accrued for the month were for the notes payable P35,000, for the
mortgage payable P75,000 and for the notes receivable P12,000.

▪ The mortgage payable together with its respective interests were paid.

▪ 1/3 of the existing accounts receivable at the beginning of the month was collected
for only P42,000.

▪ P180,000 of the total inventories were sold for P225,000 cash. (Perpetual Inventory
System)

▪ Only P138,000 was collected out of half of the total amount of the notes receivable
recorded as of October 1, included in the amount collected was the related interest on the
notes in the amount of P6,000.

▪ Furniture was sold for P85,000.

▪ Administrative expenses of P60,000 were paid.

▪ Wages Payable was paid.

▪ Additional sales amounting to P170,000 were made for the remaining inventories.
(Perpetual Inventory System)

▪ Remaining non-cash assets are to be realized and remaining liabilities are to be paid
in the next period(s) of liquidating CIG Corporation.

Compute the profit or loss of the trustee for the month of October (accountability
technique)
a. (259,000)
b. (536,500)
c. 213,500
d. 18,500
Solution: (SORAL) Alternative 1
Asset to be Realized10/1 Asset Realized(dec. during)

Accounts Receivable 150,000 Accounts Receivable 42,000

Inventories 425,000 Inventories 180,000
Notes Receivable 300,000 245,000
Equipment 210,000 Notes & Interest 138,000
Furniture 130,000 Furniture 85,000 P690,000
Machinery 200,000 P1,415,000

Increase in Asset ( Inc. during) Asset not Realized 10/31

Interest Receivable 12,000 Accounts Receivable 270,000
Accounts Receivable 170,000 P182,000 Notes & Interest 156,000
Equipment 210,000
Machinery 200,000 P836,000

Liabilities Liquidated (paid) Liabilities to be Liquidated 10/1

Mortgage Payable 750,000 Accounts Payable 400,000
Interest Payable 75,000 Wages Payable 125,000
Wages Payable 125,000 P950,000 Taxes Payable 75,000
Notes Payable 400,000
Mortgage Payable 750,000 P1,750,000

Liabilities not Liquidated 10/31 Increase in Liabilities (inc during)

Accounts Payable 400,000 Interest Payable 110,000
Taxes Payable 75,000
Interest Payable 35,000
Notes Payable 400,000 P910,000

Supplementary Charges Supplementary Credits

Interest Expense 110,000 Interest Income 12,000
Cost of Goods Sold 180,000 Sales 225,000
170,000
245,000 P407,000
Administrative Exp 60,000 P595,000

Total Debit P4,052,000

Total Credit P3,793,000
Loss P( 259,000)
Solution: (SORAL) Alternative 2

Asset to be Realized10/1 Asset Realized(dec. during)

Accounts Receivable 150,000 Accounts Receivable 42,000

Inventories 425,000 Inventories 225,000
Notes Receivable 300,000 170,000
Equipment 210,000 Notes & Interest 138,000
Furnitures 130,000 Furnitures 85,000 P660,000
Machinery 200,000 P1,415,000

Increase in Asset ( Inc. during) Asset not Realized 10/31

Interest Receivable 12,000 Accounts Receivable 270,000
Accounts Receivable 170,000 P182,000 Notes & Interest 156,000
Equipment 210,000
Machinery 200,000 P836,000

Liabilities Liquidated (paid) Liabilities to be Liquidated 10/1

Mortgage Payable 750,000 Accounts Payable 400,000
Interest Payable 75,000 Wages Payable 125,000
Wages Payable 125,000 P950,000 Taxes Payable 75,000
Notes Payable 400,000
Mortgage Payable 750,000 P1,750,000

Liabilities not Liquidated 10/31 Increase in Liabilities (inc during)

Accounts Payable 400,000 Interest Payable 110,000
Taxes Payable 75,000
Interest Payable 35,000
Notes Payable 400,000 P910,000

Supplementary Charges Supplementary Credits

Interest Expense 110,000 Interest Income 12,000

Administrative Exp 60,000 P170,000

Total Debit P3,627,000

Total Credit P3,368,000
Loss P( 259,000)
Solution: (SORAL) Alternative 3
Asset to be Realized10/1 Asset Realized(dec. during)

Accounts Receivable 150,000 Accounts Receivable 42,000

Inventories 425,000 Inventories 225,000
Notes Receivable 300,000 170,000
Equipment 210,000 Notes & Interest 138,000
Furniture 130,000 Furnitures 85,000 P660,000
Machinery 200,000 P1,415,000

Increase in Asset ( Inc. during) Asset not Realized 10/31

Interest Receivable 12,000 Accounts Receivable 270,000
Accounts Receivable 170,000 P182,000 Notes & Interest 156,000
Equipment 210,000
Machinery 200,000 P836,000

Supplementary Charges Supplementary Credits

Interest Expense 110,000 Interest Income 12,000

Administrative Exp 60,000 P170,000

Total Debit P1,767,000

Total Credit P1,508,000
Loss P( 259,000)
Alternative Computation:
Sales (225,000 + 170,000) P 395,000
Cost of Goods Sold (425,000)
Loss P (30,000)
Administrative Expenses (60,000)
Interest Expense (110,000)
Interest Income 12,000
Loss on Realization (Note A) ( 71,000)
Net Loss P(259,000)

Note A
Carrying Value Proceeds Gain/(Loss)
Accounts Receivable P50,000 P42,000 P8,000
Notes Receivable & Interest P156,000 P138,000 P18,000
Furniture P130,000 P85,000 P45,000
P(71,000)
 CIG CORPORATION
Statement of Financial Position
As of October 31, 2022

Assets Liabilities
Cash (Note B) 287,500 Accounts Payable 400,000
Accounts Receivable 270,000 Tax Payable 75,000
Notes Receivable 150,000 Notes Payable 400,000
Interest Receivable 6,000 Interest Payable 35,000 910,000
Equipment 210,000 Share Capital 750,000
Machinery 200,000 Deficit (536,500)(C)
Estate Equity (D) 213,500

P1,123,500 P1,123,500

Note B
Cash, Oct 1 P807,500
Add: Collections from AR 42,000
Collections from NR & Interest 138,000
Proceeds from the sale of Furniture 85,000
Cash Sales 225,000
Deduct: Payment for Mortgage & Interest (825,000)
Wages Payable (125,000)
Administrative Expenses ( 60,000) P287,500

Note C

Deficit, Oct 1 P(277,500)

Net Loss during the month (259,000)
Deficit, Oct 31 P(536,500)

Note D

Estate Equity, Oct 1 P472,500

Net Loss during the month (259,000)
Estate Equity, Oct 31 P213,500
Problem 4. RMV Corporation has been undergoing liquidation since January
1. As of June 30, its condensed Statement of Realization and Liquidation is
presented below:
Assets realized P 4,200,000
Interest on Investment 21,000
Purchases (Periodic) 210,000
Increase in Assets 700,000
Liabilities assumed 210,000
Payment of expenses of trustee 1,050,000
Liabilities to be liquidated 9,100,000
Sales on Account 700,000
Assets not realized 5,880,000
Liabilities not liquidated 4, 459,000
Sales for cash 3,500,000
Assets to be realized 13,300,000

Compute the net gain (loss) on realization and liquidation

a. (1,169,000)
b. (959,000)
c. 1,169,000
d. 959,000

Solution:
Asset to be Realized 13,300,000 Asset Realized 4,200,000

Increase in Asset 700,000 Asset not Realized 5,880,000

Liabilities Liquidated 4,851,000 Liabilities to be Liquidated 9,100,000

Liabilities not Liquidated 4,459,000 Increase in Liabilities 210,000

Supplementary Charges 210,000 Supplementary Credits 21,000

1,050,000 700,000
3,500,000
24,570,000 23,611,000

Net Loss P(959,000)

Problem 5. The following data were taken from the Statement of Realization
and Liquidation of LGM Corp. for the quarter ended June 30, 2022
Assets to be realized 4,400,000
Supplementary credits 6,300,000
Liabilities to be liquidated 6,700,000
Supplementary charges 5,800,000
Liabilities liquidated 4,800,000
Assets acquired 4,200,000
Assets realized 5,500,000
Liabilities assumed 5,900,000
The ending balances of capital stock and retained earnings were P4,500,000 and
P2,000,000, respectively. A net loss of P1,800,000 resulted for the period. Compute the
ending balance of cash
a. 12,500,000
b. 13,500,000
c. 11,700,000
d. 14,300,000

Solution:

Asset to be Realized 4,400,000 Asset Realized 5,500,000

Increase in Asset 4,200,000 Asset not Realized 800,000

Liabilities Liquidated 4,800,000 Liabilities to be Liquidated 6,700,000

Liabilities not Liquidated 7,800,000 Increase in Liabilities 5,900,000

Supplementary Charges 5,800,000 Supplementary Credits 6,300,000

27,000,000 25,200,000
Net Loss P(1,800,000)

Asset = Liabilities + SHE

14,300,000 = 7,800,000 + 6,500,000
( 800,000) Non-cash Assets
13,500,000 Cash

-E N D-