Practical Accounting II

Corporate Liquidation

1. The Pollen 4U Corporation is undergoing liquidation and has the following condensed Statement
of Financial Position as of June 1, 2011:

Assets Liabilities and Equity

Cash 399,700 Salaries Payable 175,000
Receivables (net) 1,192,800 Accounts Payable 379,750
Merchandise 280,000 Bonds Payable 1,400,000
Prepaid Expenses 8,750 Bank Loan Payable 770,000
Building (net) 1,207,500 Note Payable 280,000
Goodwill 192,500 Ordinary Shares 420,000
Deficit (143,500)
Total 3,281,250 3,281,250

The bonds payable is secured by the building having book value of P1,207,500 and a realizable value of
P1,260,000. Of the accounts payable, P210,000 is secured by 25% of the receivable which is estimated to
be 80% collectible. The remainder in the book value of the receivables which has a realizable value of
P822,500 is used to secure the bank loan payable. The merchandise has a realizable value of P185,500.
In addition to the recorded liabilities are accrued interest on bonds payable amounting to P14,000 and
trustees expenses amounting to P8,750 and taxes P10,500. Compute for the settlement to fully secured
creditors, partially secured creditors and unsecured creditors without priority.

Fully Secured Partially Secured Without Priority

A. 980,000 1,105,464 472,014
B. 980,000 1,380,398 351,614
C. 1,008,560 1,380,398 472,014
D. 1,008,560 1,105,464 351,614

2. The following information are related to JVCD Corporation which is undergoing liquidation:
a. A bank loan amounting to P455,000 is secured by inventories with book value of
P525,000 and net realizable value of P350,000.
b. Of the P1,120,000 accounts payable, P343,000 is secured by accounts receivable
amounting to P413,000 which is 10% uncollectible.
c. Property and equipment costing to P875,000 and which is depreciated by 20% has a net
realizable value of P588,000.
d. Other unrecorded liabilities are accrued interest payable on bank loan, P45,500; salaries
payable, P112,000; taxes payable, P63,000; and trustee’s fee, P52,500.
e. Cash available before liquidation amounts to P87,500.

Compute for the estimated deficiency to unsecured creditors and expected recovery percentage of
unsecured creditors.
A. 450,800 B. 882,000 C. 927,500 D. 980,000

3. The following data were taken from the statement of realization and liquidation of AAA Corp.
for the quarter ended June 1, 2011.
Assets to be realized 687,500
Supplementary credits 1,062,500
Liabilities to be liquidated 1,125,000
Supplementary charges 975,000
Liabilities liquidated 750,000
Assets acquired 750,000
Assets realized 875,000
Liabilities assumed 375,000
Assets not realized 312,500
The ending capital balances of capital stock and retained earnings are P865,000 and P238,000,
respectively. A net loss of P302,000 for the period. How much is the ending balances of cash?
A. 1,500,000 B. 1,680,000 C. 1,305,000 D. 1,076,000

4. The unsecured creditors on Insolve Corporation filed a petition on July 1, 2008 to force Insolve
Corporation into bankruptcy. The court order for relief was granted on July 10 at which time an
interim trustee was appointed to supervise liquidation of the estate. A listing of assets and
liabilities of Insolve Corporation as of July 10, 2008, along with estimated realizable values, is as
follows:
Assets Book Value Estimated Realizable Values
Cash 61,400 61,400
Accounts receivable 250,000 15% of the accounts receivable is
Allowance for D/A (20,000) estimated to be uncollectible.
Inventories 420,000 Estimated selling price, 340,000
which will required additional
costs of 50,000
Prepaid expenses 40,000 ?
Investments 180,000 110,000
Land 210,000 An off of 500,000 has been
Buildings (net) 260,000 received for land and buildings
Machinery and equipment (net) 220,000 53,900
Goodwill 200,000
Total Assets 1,821,400
Liabilities and Equity
Accounts Payable 670,000
Wages Payable 3,400
Notes payable 160,000
Accrued interest- note 5,000
Mortgage payable, secured by 400,000
land and building
Capital stock 800,000
Additional paid-in capital 80,000
Deficit (297,000)
Total Liab. & Equity 1,821,400
Additional information:
a. Patents completely written-off the books in past years but with a realizable value of P10,000.
b. The books do not show the following accruals (unrecorded expenses/additional liabilities):
i. Taxes…………………………………16,400
ii. Interest on mortage………….10,000
c. The investment have been pledged as security for holder of the notes payable.
d. The trustee fees and other costs of liquidating the estate are estimated to be P60,000.
Determine:
1. The total free assets should be:
A. 1,831,400 B. 1,821,400 C. 717,800 D. 638,000
2. The net free assets should be:
A. 717,800 B. 698,000 C. 638,000 D. 628,000
3. The estimated deficiency to unsecured creditors should be:
A. 87,000 B. 47,800 C. 27,000 D. 7,200
4. The expected recovery percentage of unsecured creditors should be:
A. 96,00% B. 95.00% C. 88.00% D. 86.62%
5. The estimated payment to creditors should be:
Unsecured Creditors
Fully Secured Partially Secured With Priority Without Priority
A. 410,000 110,000 79,800 638,000
B. 500,000 158,400 60,000 589,600
C. 410,000 165,000 79,800 670,000
D. 410,000 158,400 79,800 589,600
6. The estimated net gain or loss on asset realization should be:
A. 583,600 B. 593,600 C. 670,000 D. 680,000
7. The estimated net loss should be:
A. 583,600 B. 593,600 C. 670,000 D. 680,000
8. The estimated payment to creditors should be:
A. 1,324,800 B. 1,308,000 C. 1,264,800 D. 1,237,800

5. Parcinc Dissolved Corporation filed a voluntary petition for bankruptcy on January 2009. On
March 31, 2009, the trustee provided the following information about the corporation’s
financial affairs:

Assets: Book Value Estimated Realizable Value

Cash 40,000 40,000
Accounts Receivable-net 200,000 150,000
Inventories 300,000 140,000
Plant assets – net 500,000 560,000
Total Assets 1,040,000

Liabilities:
Liabilities for priority claims 160,000
Accounts payable-unsecured 300,000
Notes payable, secured by 200,000
Accounts Receivable
Mortgage payable, secured by all 440,000
plant assets
Total Liabilities 1,100,000
Determine:

1. The amount expected to be available for unsecured claims without priority (net free assets):
A. 300,000 B. 580,000 C. 140,000 D. 310,000
2. The expected recovery per peso of unsecured creditors:
A. .215 B. .223 C. .415 D. .400
3. The estimated payment to creditors:
A. 730,000 B. 45,000 C. 770,000 D. 890,000

6. A company that was to be liquidated had the following liabilities:

Income Taxes P10,000
Notes payable secured by land 100,000
Accounts payable 51,050
Salaries payable (10,950 for Employee 1 12,950
and 2,000 for Employee 2)
Administrative expenses for liquidation 20,000

The company had the following assets Book Value Fair Value
Current assets 100,000 95,000
Land 50,000 75,000
Building 150,000 200,000
Determine the following:
1. Total free assets, before deducting liabilities with priority, are calculated to be what amount?
A. 75,000 B. 270,000 C. 275,000 D. 295,000
2. Total liabilities with priority are calculated to be what amount?
A. 19,000 B. 37,950 C. 42,950 D. 44,000
3. Free assets after payment of liabilities with priority are calculated to be what amount?
A. 226,000 B. 247,050 C. 251,000 D. 252,050
4. Total unsecured liabilities are calculated to be what amount?
A. 44,000 B. 51,050 C. 76,050 D. 85,000
 7. The following information was available on March 31, 2008 for Bankrupt Corporation, which
they cannot pay their liabilities when they are due:
Carrying Amounts
Cash 16,000
Trade accounts receivable (net): Current fair value equal to carrying amount 184,000
Inventories: Net realizable value, P72,000; pledged on P84,000 of notes payable 156,000
Plant assets: Current fair value, P269,600; pledged on mortgage notes payable 536,000
Accumulated depreciation of plant assets 108,000
Supplies: Current fair value, P6,000 8,000
Wages payable, all earned during March 23,200
Property taxes payable 4,800
Trade accounts payable 240,000
Notes payable, P84,000 secured by inventories 160,000
Mortgage payable, including accrued interest of P1,600 201,600
Common stock, P5 par 400,000
Deficit 237,600
Determine:
1. The estimated losses on realization of assets:
A. 0 B. 84,000 C. 158,400 D. 244,400
2. The estimated gains on realization of assets:
A. 0 B. 84,000 C. 158,400 D. 244,400
3. The expected recovery percentage of unsecured creditors:
A. 75% B. 78% C. 88% D. 98%
4. The estimated deficiency to unsecured creditors:
A. 86,000 B. 82,000 C. 70,000 D. 54,000

8. The Liquid Company had a very unstable financial conditional caused by a deficiency of liquid
assets. On February 4, 008, the following information was available:
Cash 112,000
Assets Not Realized:
Accounts Receivable 80,000
Merchandise inv. 160,000
Investment in C.Stock 26,400
Land 100,000
Buildings 60,000
Machinery and equip 48,000
Liab. Not Liquidated:
Notes Payable 244,000
Accounts Payable 288,000
Salaries and Wages 40,000
Taxes payable 8,000
Bank Loan 180,000
Estate Deficit (173,600)

During the six-month period ending July 31, 2008, the trustee sold the Investment in Common Stock for
P26,000, realized P84,000 for the accounts receivable, sold the merchandise for 152,000, and paid-off
P26,000 of the bank loan and all liabilities with priorities (salaries, and wages payable, taxes payable) as
well as P7,440 for estate administration expenses.
Determine:
1. The estate deficit, ending (July 31, 2008) should be:
A. 161,760 B. 178,000 C. 185,440 D. 189,440
2. The net (gain)loss on realization and liquidation:
A. 11,840 loss B. 11,840 gain c. 15,840 loss d. 4,400 loss
 9. Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed
statement of realization and liquidation is presented below:
Assets:
Assets to be realized 95,000
Assets acquired 5,000
Assets realized 30,000
Assets not realized 42,000
Liabilities:
Liabilities liquidated 35,000
Liabilities not liquidated 31,850
Liabilities to be liquidated 65,000
Liabilities assumed 1,500
Revenues and Expenses:
Sales on accounts 5,000
Purchases 1,500
Payment of expenses of trustee 7,500
Sales for cash 25,000
Interest of marketable sec. 150

The net gain (loss) for the three-month period ending March 31 is:
A. 7,200 B. (7,200) C. 49,500 D. (17,500)