PA2.M- 1415 CORPORATE LIQUIDATION STRAIGHT PROBLEMS Problem 1 ABC Corp., in financial difficulty, presented the following balance sheet as of June 30, 2012 Cash 13,000 Wages Payable 12,500 Accounts Receivable 120,000 Taxes Payable 17,500 Inventory 150,000 Accounts payable 250,000 Investment in X Stock 30,000 Bank loan payable 40,000 Land and Buildings 250,000 Mortgage payable 300,000 Equipment 125,000 Common Stock 250,000 Other assets 12,000 Retained Earnings (deficit) (17,000 Total assets 700,000 Total liabilities and equity 700,000 Half the receivables are good, but the rest are doubtful and should realize only 25%. The inventory is currently worth P 125,000. The 1,500 X shares, pledged to secure the bank loan, are quoted at P30/share. The land and buildings, securing the mortgage, are appraised at 110% of book value. Equipment has a fair value of P80,000 while the other assets are worthless. Required: Prepare a statement of affairs and a deficiency account: Problem 2 The following information is available on June 1, 2010 to Gold Mine Company, which is having difficulty in paying its liabilities as they become due: Cash Accounts receivable, net, fair value equal to carrying amount Inventories, current fair value, P40,320 pledged on P47,040 of notes payable Machinery and equipment, net, current fair value of P150,976 pledged on mortgage note payable Office supplies, current fair value of P5,600 Wages payable Taxes payable Accounts payable Notes payable, P47,040 of which is secured by inventories Mortgage note payable Common stock, P5 par Retained earnings, deficit Additional information:
Carrying Amount P 8,960 103,040 87,360 239,680 4,480 12,992 2,688 134,400 89,600 112,896 224,000 133,056
a) Estimated liability to the trustee is P58,240. b) A delivery van previously given to the supervisor was returned to the company, fair market value, P56,000. Required: a. Prepare a statement of affairs as of June 1, 2010. b. Compute the estimated recoverable amounts to the different types of creditors in the event of liquidation. c. Prepare a statement of deficiency to unsecured creditors. MULTIPLE CHOICE QUESTIONS 1. The Global Corporation is undergoing liquidation and has the following condensed statement of financial position as of January 1,2013: Assets Cash P 114,200 Receivables (net) 340,800 Inventory 80,000 Prepaid Expenses 2,500 Building (net) 345,000 Goodwill 55,000 Total Assets
Liabilities and SHE Salaries Payable P 50,000 Accounts Payable 108,500 Mortgage Payable 400,000 Loan Payable 220,000 Note Payable 80,000 Ordinary shares 120,000 Deficit (41,000) Total liab. and SHE P937,500
The mortgage payable is secured by the building having a realizable value of P360,000. Accounts payable amounting to P60,000 is secured by the receivables amounting to P85,200 which is collectible in the amount of P68,160. The balance in the book value of the receivables which has a realizable value of P235,000 is used to secure the loan payable. The inventory has a realizable value of P53,000. In addition to the recorded liabilities are accrued interest on mortgage payable amounting to P4,000, liquidation expenses amounting to P9,500 and taxes amounting to 4,000. (use two decimal places for the recovery percentage) Which of the following statements is wrong? A. The estimated deficiency to unsecured creditors is P45,640. B. Payment to partially secured creditors is P392,358 C. Payment to unsecured creditors without priority is P94,499 D. Estimated loss on asset realization is P107,140 2. The following data are provided by Worldwide Corporation which is undergoing liquidation process: Total liabilities amounts to P692,000. 35% is fully secured by assets amounting to P270,000 with fair market value of P250,000; 40% is partially secured by assets amounting to P300,000 with realizable value of P225,000; and the remaining balance is unsecured. Total assets amounts to P890,000 and has a total fair market value P695,000.
Unpaid income taxes amounts to P35,000. Additional salaries payable and administrative expenses totaled P28,000. Deficit amounts to P79,000.
Which of the following statements is correct? A. Assets available to all unsecured creditors with and without priority is P227,800 B. The amount paid to partially secured creditors is P225,000 C. The estate deficit amount to P60,000 D. The amount paid to all secured creditors is P695,000 3. A review of the assets and liabilities of Atlantis Corporation in bankruptcy on Nov. 30, 2013, 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 excluded claims with priority of P8,000 Which of the following statements is true? A. Actual recovery percentage is P66.27% B. Total free assets is P22,000 C. Estimated deficiency to unsecured creditors is P11,200 D. Payment to partially secured creditors amount to 36,800 Use the following information for questions 4 to 6: Twisted Corporation is undergoing liquidation. The trustee of Twisted Corp. presented the following information: Assets amounting to P125,000 are available to unsecured liabilities without priority. Assets amounting to P110,000 represents assets originally not pledged to any liabilities. Unpaid liabilities are as follows: administrative expenses: P21,000; taxes: P18,000 and wages: P32,000. Accounts payable and notes payable totaled P180,000. No assets were pledged on the said liabilities. Payment to fully secured creditors and partially secured creditors amounts to P139,000 and P144,000 respectively. The expected recovery percentage is 40 percent. 4. Amount of assets pledged to fully secured creditors A. P139,000 B. P225,000 C. P235,000 D. P249,000
5. Total liabilities A. P522,500
B. P534,000 C. P613,500 D. P580,000 6. The amount to be paid to all creditors A. P426,000 B. P187,500 C. P479,000 D. P210,000 7. The following data were taken from the statement of realization and liquidation of Intercontinental Corporation for the quarter ended June 30, 2013 Assets to be realized Supplementary credits Liabilities to be liquidated Supplementary charges Liabilities liquidated Assets acquired Assets realized Liabilities assumed Assets not realized
P515,625 796,875 843,750 731,250 562,500 562,500 656,250 281,250 234,375
The ending capital balances of capital stock and retained earnings are P648,750 and P178,500, respectively. A net loss of P226,500 for the period. How much is the ending balance of cash? A. P1,125,000 B. P1,260,000 C. P978,750 D. P807,000