ized in an amount sd, revemse is recog equal Under te zero prot imetmale estimanes of the percentage of completion cost Inca et of eve be recognized in 2016 isn tof east incurred same period. PROB 12-51 Suggested ansiver| o ioted without regard tothe original contract The ple of he ot 9 SPR, bu nolo PRS/PERS fr SMEs, licable to full. ite @ is appli a vo ‘additional asset shall be treated as a separate cansiruction contrac. PROB, 12-52 Suggested answer (4) ‘ontracts the IFRS/PERS for SMEs, an the ouucome of the construction ‘Similar with PASTAS ‘Seetion 23, Revenue, recognize revenue only (0 the extent of contract costs is probable willbe recoverable; and «The entity shall recognize contract costs as am expense in the period in ‘whi they are incurred Chapter 13 CORPORATE LIQUIDATION Introduction be insolvent, creditors an attempt to protect a ng, creditors, IF any assets isfed, these assets are returned to the deblor. Before the statement of affairs can be constructed, a balance sheet is prepared and certain supplementary information is assembled. Such supplementary data consist of the following: 1. Estimates and appraisals from reliable sourees of the amounts that will be realized for each assetapr 18— Corporate 3, Obligatior that are nt reflected o” ‘Assets on the Statement of Affairs «and their presentation on the statement of affairs differ jon of ants and he Pon of assets on the balance sheet. The liability classification on the oppesit Assets are ordinarily classified ingroup, and in the following order: 1. Assets pledged with flly secured creditors “These are eses that have been pledged and that are expected to realize an ‘amount equal to or in excess of the claims on which they have been pledged. In short they ae pledged assets whose value is sufficient to pay in fall he claims of te creditors in question. 2._ Assets pledged with partially secured ereditors ‘These are assets that have been pledged but that ae expected to realize less ‘than the amount ofthe claims on which they have been pledged. In short, they are pledged assets whose value is sufficient to pay partially the claims ofthe creditors in question Free assets ese ate assets that have not been pledged and hence are not related to items are reported under this heading. Preferred claims these ases, and after satisfaction of these liens, the free in are availble for the payment of claims of unsecured * 5. Owners’ Equity Liabilities with priority These are preferred claims which, by law, be provided fe ‘anything may be paid to remaining unsecured creditors, Ins claims of those who, by law, have priority to the free assets receiver. Fally secured creditors ‘These are creditors who have been pledged cert secured by the pledge of assets of payment of these claims in full, payment of these claims. |. Unsecured creditors ‘These are creditors who are with pledged no assets. In short, they are ny assets and which have no priority upon free assets o enterprise. lances ‘ing the interests of the owners in the business ‘These ae balan er he heading "Owners? exit” of “Stockholder” and are reported under Equity”.s_ AND LIQUIDATION [STATEMENT OF REALIZATION fons of 8 assets and i pusiness under the direction of a tus fiquidation of indebtedness tee the course of opera lied statement of realization of MULTIPLE CHOICE QUESTIONS pRoB. 13-1 (Adapted) ©. Liabilities are aang ferent sequence. G.Owners’ equity is not considered in the Statement of afi PROB. 13-4 (Adapted) ‘An accounting, statement indicates that unsecured of the following asses is m book value? ‘a. Accounts receivable.Chaper 13 ~ Corporate Liguideton Cass 7 unsecured creditors based on ay ‘may be concluded that 1 percentage of return. proceeds on the realization of an asset exceed 1 excess is assigned to realize a sufficient amount to ‘of the unsecured creditors, 4. The stockholders of the corporation. PROB. 13-8 (AICPA) ‘Seco Corp. was forced into bankruptcy and is ‘ paying claims. Unsecured claims wil be paid othe vas ay Pad at the rate of PO.40 qa 13 — Corporate Ligation Sree PCE eer eee eee peso. Hale holds a P30,000 noninterest ber collaterized by an asset with a book value of 35,009 sag SSN fom Seco 5,000. The amount to be realized by Hale onthe none ig tton vale of 5,000 * PROB. 13-9 (AICPA) Kent Co. filed a voluntary bankruptcy petition on August 15, 2017, statement of affairs reflected the following mounts; Sm Estimated Book Current Value Value Assets Assets pledged with fully secured creditors 300,000 P. 370,000 ‘Assets pledged with partially secured creditors 180,000 120,000 Free assets 420,000 320,000 7.900,000, “P_$10,000 Unsecured creditors 1s are converted to cash at the est idated. What amount of cash wilter 13 —Conporate Liguidetion on PROB. 13-11 (Adapted) PA) si prop. 13-10(AIC! ee mated ition on June 25, 2017, } Curent led a voluntary bankeuptey petition 0 Ad the 9 : seat Company id se following amOUns | Assets pledged with partly secueg —~S— Ya statement ofa Ereditors Book Estimated P 80,000 P Ei Carving Caren nal iiers aoa eto Amount Value cate Book Assets ‘Amount “Assets pledged with fully secured creditors P 160,000 P'190,000 Preferred claims Value —Unseoured _ ‘vith parially secured i P 16,000 PO Assets pledged Partially secu creditors 90,000 60,000 a 75,000 25,000 fees 200,000 140,000 Unseow 155,000 155,000 450,000, —P ; —BASH000, | _P390,000" ‘a, What is the total amount available for payment of claims of unsecured a creditors? ia a. 0 ies with priority P 20,000 b. 144,000 red ees 130,000 . 160,000 ~ Parialy secured creditors 100,000 4. 210,000 ‘Unsecured ereitors 260,000 P510,000 b. What is the estimated amount of liquidating dividend per peso claim | (rounded to the nearest centavo)? ‘Assume thatthe assets are converted into cash at the estimated current values 2.0.80 ‘and the business is liquidated, What total amount of cash should the partially b 088 sete eens ee? 103 i a.m &taootn ©. What is the amount of deficiency o creditors? " a. 180,000 b. 160,000 144,000 | 4, 36,000 | {n 2017, Camel Corp. was forced into bankruptey and begun to liquidate. The j PROB, 13- following selected account balances ‘were taken from its statement of affairs: Oe ame the workin In May 2017, it was determined that — Feast chet Process of Wild West Corp. To com worverson cost will be required value of raw materials and supplies and P10,000 conversion :— en Cpt dat ably sel for approximately P5009, cers, which have a book valve of P40,000, have an estimated pe Teatiaable value of 220,000. Wt tht it etl real ae eure eos a5 a reilt ofthe realization ofthe won, ‘When completed, these 008 PROB. 13-13 (Adapted) ‘he following selected account balances were taken from the balance shet of Guiting Cop as of December 31,2017, immediately before the take over ofthe trustee P 300,000 110,000 150,000 400,000 Building ‘Additional information: +) Marketable securities have present market value of P320,000. These securities have been pledged to secure notes payable of P280,000. ‘© The estimated worth of inventories is P70,000. Howey ‘book value of P50,000 have been pledged to secur 60,000, The realizable value of the inventories pledged is estimated to be 40,000. Land and building ae estimated to have a total realizable value of P450,000. ‘This property is pledged to secure the mortgage payable of P250,000. 3 preferred claims and unsecured ly secured creditors? b NL 810,000 Seman b. 770,000 ©. 270,000 d. 240,000 prop. 15-14 (Adapted) ‘The accountant of Drifing Corp. prepared a statement of ats. Asets which there ars no ens are expected to produce P700,000. Unsecured claims of all aled to PI,050,000. The following deemed outst The following at ae claims 1. Accrued salaries, P15,000. 2. Unrecorded note for P10,000, on which P6OO of interest as accrued held by ‘Normandy Co. 3. A note for P30,000 secured by P40,000 receivable, estimated to be 60% collectible held by Jones Co. 4. A P15,000 note, on which P300 interest has acrued held by James Pty Property with a book value of P10,000 and market valve of P18,000 is pledged to guarantee payment of principal and interest. 5. Unpaid income taxes of 35,000. ‘What is the amount realized by partially secured creditors? 600 ©. 24,900 4, 27900INS SOLUTIONS: AND | EXPLANATIO! as more liabilities than assets answer (¢) The frm ron 8-1 Ser ai iets ee i “bess #6 58 of asses. Baten iis cs bent, which pero coflacking all rly secired 13.2 gee ove) Par = a abies are cais where creditors have ben pledged Pay sc peed reac les an thr respective claims oo ‘Suggested cswer sheet reflects book values, while a occ 0 Aa of afer enphaszes redzaton vas ‘fnancial condition for a going business “A balance sheet is a satement of fancial condition for @ going and the values therein are “going-concern values which reflect the Folcaion of accepted pinles of accountng. A statement of asi @ taement of financial condition of 2 business from the standpoint of the sat ch relation vane of I asets and the abies ‘the business. It is a statement of position from a “quitting ‘cancern” point of view. PROB. 13-4 Suggested answer 2) Goodwill 4s defined, goodwill isthe present value of future excess profits over a normal rate ofretarn. tis tkely to have no realizable value ifthe company is in financial afculty. PROB. 13-5 Suggested answer (¢) Class 1 through 6 unsecured claims will be paid in full lass 7 includes ce ort at ins of general creditors not oghee tbe paid ‘once a Classes 1 nugh 6 mus be paid in fd” ny payment, Classes PROB. 13-6 Suggested answer Compeston agreement. A troubled debt resrctuing may be ace Regardless of the method ised ¢ “formal Seat ee es between the debtor and inviaaeredtrs. Generally such agreements take the form of a credir agreement ora composition agreement. A creditor agreements used to extend the terms ofa det or mee other concessions regarding fice interest rates. A composition agreement is used 10 scale down a creditor's claims against the der. For example. creditors might agree 10 accept POO per peso of det owed oem PROB. 13-7 Suggested ansirer (c) Meet the claims of the unsecured creditors. ‘The amount realizable in excess ofthe len form part ofthe fre assets and is assigned fo cover unsecured debts. PROB. 13-8 Suggested answer (c) 15,000Chapter 13 ~ Corporate Liquidation ne a eh Oa prop. 19-9 Saget aver (2) P360000 estimated curent vale of assets pledged ; P 370,000 fully secured creditors o ‘dst cent vale of ie assets 320,000. Ms 680,000, es Liable: Fully secured ects 260,000 With priory 10,000 __330,000 ‘Total cash available for unsecured claims P360,000_ Assets pledged with fully secured creditors are assets that have been pledged and that ae expected fo ralie an amount equal to oF In excess of the clains on which they have been pledged. In short, they are pledged assets whose value is sufficient to pay in full the claims of the creditors in the proceeds are applied Fase {0 the respective secured claims, If certain pledged property fails to ‘pal an ast equl tthe claim against i, the unpaid Balance of the mes an unsecured or general claim against the debtor. However, Ihe pledged proper becomes availa ve he es mere than amount ofthe claim, the excess io ee trustee for distribution to creditors with priority PROB, 13 -10.Sugzesed answer (6) P84,000 Estimated current va ue oF assets pledged with agri P 190,000 ‘Add: estimated curent valu ‘a, value of free 140,000 330,000 creditors P130,00 - 20,000 available for unsecured 155,000 180,000 [100,000 - 60,000) + 260,000] 300,000 Estimated liquidation value per peso cl 060 Multiply by unsecured portion of lly secured ereitors 40,000 Total amount recived based on liquidation value per peso claim 24,000 ‘Ada secured portion 60,000 Total amount of cash received by partially secured creditors P 84,000, ‘The requirement is to determine the total amount of cash the partially secured creditors should receive. liquidation value per peso claim, as computed above, amounted is amount must be applied 10 the unsecured portion of P40,000, mated curent ae of ‘aesets pledged with partially secured creditors in the amount of P0000; ‘has, the total amoint of cash received by prtaly secured crediors is 84,000. PROB, 13-11 a. Suggested answer (0) P148,000 P 160,000 16,000 P 144,000 2144000,Chapter 13 ~ Corporate Liquidation assets hese assets, and ree assets oe ans teat. fre free assets are available for the sation Faye secre be Sages answer P 160, sited crt ena Lever to unsecured creditors 144,000" ties ; 180,000 180,000. vidend por pesoclaim =P 0.80 wuidating dividend is the estimated amount available to a al ant say be compute by arming rc pos cae les poral clans) ip thf amount of unsecured liabilities. P 144,000 180,000 P 36,000, Defiieney o creditors The statement of affairs should be supplemented by a statement of deficiency. The function of ths statement is to show, in detail and in orderly > manner the following: 1.) the estimated losses and gains expected to be Incurred onthe realization of assets; 2) the estimated net loss expected to be incurred onthe realization ofall assets: and’ 3) the distribution of this ‘net Toss to proprietary interests, and creditors Ye mat seaeccets the books net worth, the excess, in case of Seperation, falls wpon crediors, such excess being tecinically called ions to erediors. In parimership and sole propriviorship, creditors Hemagtins the owners personally forthe satisfaction of this excess loss. Aliernaively, in the statement CaN inaterial P10,000 x 26,00040,000) » 5,000 10.000 When itis considered advamage to be entered in the estinated unsecured creditors as a res overhead) necessary to produce the fi PROB. 13-13 a, Suggested answer (€) P240,000 P 40,000, 200,000 240,000, The amount available for prefer the free assets. Based on the forego’aoe Chapter 13 ~ Corporate Liguidaton Ge eS asset isthe total free assets minus the preferred claims. Based on Nt fn ove information. no amauof preferred claim Was presented, thus on tha the tal fee asset i equa 10 net free asset, which could be made available for unsecured creditors. PROB. 13-14 Suggested answer (@) P27,900 ‘Total Free Assets 700,000 Less unsecured claims with priority Acerued salaries 15,000 ‘Unpuid income taxes 35,000 50,000 Net Free Assets 650,000 Divide by total unsecured cla priory: Total unsecured claims of a5, a salaries and unpaid taxes) $0900. 00000, ececemaseserem Total amount realized by parially secured creditors 730, The total unsecured claim of claims with and without prior With priority then, 1o unsecured claims wither all classes is basically composed of unsecured “plied first to unsecured claims ut priority. : CHAPTER 14 FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Introduction ‘An entity may carry on fori ‘A functional currency a the entity operates and he pri