Chapter 6

Problem I
1. Statement of Affairs - Formal
MINER COMPANY
Statement of Affairs
May 31, 2012
Book Value
P 50,000
1,200

119,000

13,200

6,000
61,000
60,000
1,100
8,500

Assets
Assets Pledged with Fully Secured Creditors:
Notes Receivable
P39,800
Accrued Interest Rec.
1,000
P 40,800
Notes Payable
Accrued Interest Pay.

40,000
800

Building
Note Payable
Accrued Interest Pay.

20,000
800

40,800
75,000
20,800

Free Assets
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Goodwill
Total Net Realizable Value
Liabilities having Priority Wages
Taxes
Net Free Assets

6,000
50,000
30,000
400
0
140,600
6,000
2,400

Estimated Deficiency to Unsecured Creditors

P 6,000
2,400
60,000
1,600
10,000

P 54,200

Assets Pledged with Partially Secured Creditors:

Equipment
4,200
Note Payable
10,000

Equities
Liabilities Having Priority:
Accrued Wages
Taxes Payable
Fully Secured Creditors:
Notes Payable
Accrued Interest Payable
Partially Secured Creditors:
Note Payable
Equipment

8,400
132,200
53,600
P 185,800

P 320,000
Book
Value

Realizable
Value

Unsecured
P 6,000
2,400

P 8,400

60,000
1,600

61,600
10,000
4,200

P 5,800

170,000
10,000
110,000
( 50,000)
P 320,000

Unsecured Creditors:
Accounts Payable
Notes Payable

170,000
10,000

Stockholders Equity
Common Stock
Retained Earnings (Deficit)
P 185,800

2. Deficiency Statement to determine estimated deficiency to unsecured creditors:

Deficiency Account
May 31, 2012
Estimated Losses:
Estimated Gains:
Accounts Receivable
P 11,000
Common Stock
P 110,000
Notes Receivable
10,400
Retained Earnings
(50,000)
Inventory
30,000
Estimated Deficiency to
Buildings
44,000
Unsecured Creditors
53,600
Equipment
9,000
Prepaid Insurance
700
Goodwill
8,500
P113,600
P 113,600
Estimated final dividend rate to unsecured creditors is: P132,200/P185,800 = 71.15%
Problem II
1. Formal

Book Value
P165,000

3,000
72,000
60,000

______
P300,000

Down Dog Corporation

Statement of Affairs
June 30, 2014

Assets
Pledged with partially secured creditors
Equipment-net
Less: Note payable and accrued interest
Unsecured amount (See below)
Free Assets
Cash
Accounts receivable-net
Inventories
Total net realizable value
Less: Priority liabilities wages payable
Total available for unsecured creditors
Estimated deficiency to unsecured creditors

Realizable Value
P87,000
(96,000)
(9,000)
3,000
48,000
72,000
123,000
(45,000)
78,000
30,000
P108,000

Deficiency
Account
(Loss/Gain)
(78,000)

(24,000)
12,000

______
(90,000)

Unsecured
Equities

Book Value
P 45,000

96,000

72,000
27,000
180,000
(120,000)
P300,000

Priority liabilities
Wages payable (assumed under
P4,650 per employee)

P 45,000

Partially secured creditors

Note payable and accrued interest
Less: Equipment pledged as security

P 96,000
(87,000)

Liabilities

P 9,000

Unsecured creditors
Accounts payable
Rent payable

72,000
27,000

Stockholders equity
Capital stock
Retained earnings (deficit)

180,000
(120,000)
P 60,000
P(30,000)

______
P108,000

Estimated Deficiency

2. Estimated payments per dollar for unsecured creditors

Cash available
Distribution to partially secured and unsecured priority creditors:
Note payable and interest
P87,000
Administrative expenses
24,000
Wages payable
45,000
Available to unsecured nonpriority creditors

P210,000

(156,000)
P 54,000

Note payable and interest (unsecured portion)

Accounts payable
Rent payable
Unsecured nonpriority claims

P 9,000
72,000
27,000
P108,000

(P54,000 / P108,000 = P0.50 per peso)

Expected recovery for each class of claims
Partially secured
Note payable and interest
Secured portion
Unsecured portion (P9,000 0.50)

P87,000
4,500

P91,500

Unsecured priority
Administrative expenses
Wages payable

P24,000
45,000

69,000

Unsecured nonpriority
Accounts payable (P72,000 0.50
Rent payable (P27,000 0.50)
Total payments

P36,000
13,500

Problem III
Realizable value of all assets (P635,000 + P300,000 + P340,000)

49,500
P210,000

P1,275,000

Allocated to:
Fully secured creditors
Partially secured creditors
Unsecured creditors with priority
Remainder available to general unsecured creditors
Payment rate to general unsecured creditors
(Including balance due to partially secured creditors)
P559,000 / (P1,165,000 + (P400,000 - P300,000))

(316,000)
(300,000)
(100,000)
P559,000

44.2%

Realizable value of assets:

Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
Free assets
Total realizable value

P635,000
300,000
340,000
P1,275,000

Amounts to be paid to:

Fully secured creditors
Partially secured creditors [P300,000 + (0.442 P100,000)]
Unsecured creditors with priority
General unsecured creditors (0.442 P1,165,000)
Total

P316,000
344,200
100,000
514,800*
P1,275,000

*Rounded P130
Problem IV
Free Assets:
Current Assets .................................................................................
Buildings and Equipment ..............................................................
Total ........................................................................................

P 35,000
110,000
P145,000

Liabilities with Priority:

Administrative Expenses ................................................................
Salaries Payable (only P3,000 per employee) ...........................
Income Taxes .................................................................................
Total ........................................................................................

P 20,000
6,000
8,000
P 34,000

Free Assets After Payment of Liabilities with Priority

(P145,000 P34,000) ......................................................................

P111,000

Unsecured Liabilities
Notes Payable (in excess of value of security) .........................
Accounts Payable ..........................................................................
Bonds Payable ................................................................................
Total ........................................................................................

P 30,000
85,000
70,000
P185,000

Percentage of Unsecured Liabilities To Be Paid: P111,000/P185,000 = 60 %

Payment On Notes Payable:
Value of Security (land) .................................................................
60% of Remaining P30,000 ............................................................
Total Collected by holders ............................................................

P 90,000
18,000
P108,000

Problem V
Free Assets:
Cash
........................................................................................
Receivables (30 percent collectible) ..........................................
Inventory ........................................................................................
Land (value in excess of secured note:
P120,000 P110,000) .................................................................
Total ........................................................................................

P30,000
15,000
39,000
10,000
P94,000

Less: Liabilities with priority

Salary payable (below maximum) ........................................
Free assets available ................................................................

(10,000)
P84,000

Unsecured Liabilities:
Accounts payable ..........................................................................
Bonds payable (less secured interest in
building: P300,000 P180,000) ................................................
Unsecured liabilities ..................................................................

P90,000
120,000
P210,000

Percentage of unsecured liabilities to be paid: P84,000/P210,000 = 40%

Amounts to be paid for:
Salary payable (liability with priority to be paid
in full) ........................................................................................
Accounts payable (unsecuredwill collect 40%
of debts of P90,000) ..................................................................
Note payable (fully secured by landwill collect
entire balance) ........................................................................
Bonds payable (partially securedwill collect
P180,000 from building and 40 percent of the
remaining P120,000) .................................................................

P10,000
P36,000
P110,000
P228,000

Problem VI

Class of Creditors
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities with priority
Unsecured liabilities without priority

Total
Creditors
Claims
183,600
54,600
30,810
182,500

Problem VII
1. Total estimated proceeds
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory)
Mortgage payable and interest (from
proceeds of land and building)
Total available to unsecured claimants.

Total Amounts
Expected to
be Recovered
183,600
51,720
30,810
116,800

% of Total
Claims
Expected to
be Recovered
100.0
94.7
100.0
64.0
P910,000

P150,000
320,000

470,000
P440,000

Less distributions to unsecured claims

with priority:
Wages payable
Taxes payable
Amount available for unsecured claims
2.

3.

P 10,000
20,000

Unsecured portion of notes payable and

interest (P500,000 + P30,000 P150,000)
Accounts payable
Total claims ofunsecured creditors
Dividend to Unsecured Creditors
P410,000 P640,000 = 64.1%

30,000
P410,000
P380,000
260,000
P640,000

Unsecured portion of notes payable and

Interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
Total Received

P380,000
64.1%
P243,580
150,000
P393,580

Dividend to note holders: P393,580 P530,000 = 74.3%

Problem VIII
1.
WILBUR CORPORATION
STATEMENT OF AFFAIRS
DECEMBER 31, 20x4
Assets
Estimated
Current
Values

Book Value
P 40,000

50,000
110,000

(1) Assets pledged with fully secured

creditors:
Accounts receivable (net)
Less: 10% note payable and
interest
Land
Plant and equipment (net)
Less: Mortgages payable and
interest

20,000

35,000

(2) Assets pledged with partially

secured creditors:
Marketable securities
Less: 10% note payable and
interest
Inventory
Less: Accounts payable

Estimated
Amount
Available to
Unsecured
Claims

Estimated
Gain
(Loss) on
Realization

P 40,000
38,500

P 1,500

P 65,000
100,000
P165,000
(157,500)

P 16,000

P 15,000
(10,000)
7,500

(4,000)

(20,800)
P 32,000
(60,000)

(3,000)

4,000
35,000
55,000
6,000
140,000
48,000

(3) Free assets:

Cash
Accounts receivable (net)
Inventory
Prepaid insurance
Plant and equipment (net)
Franchises

P 4,000
35,000
50,000
1,000
60,000
15,000

4,000
35,000
50,000
1,000
60,000
15,000

Estimated amount available

Less: Creditors with priority
Net available to unsecured creditors
Estimated deficiency

P 174,000
(43,000)
P 131,000
45,000

Total unsecured debt

P 176,000

P 543,000

(5,000)
(5,000)
(80,000)
(33,000)

(P 125,000)

2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43%

Problem IX

Assets to be realized
Old Receivebles, net
Marketable Securities
Old Inventory
Depreciable Assets, net

Smith Company
Statement of Realization and Liquidation
Assets
Assets Realized
P 50,000
20,000
72,000
120,000

Assets Acquired
New Receivables

Old Receivbles
New Receivbles
Marketable Securities
Sales of Inventory
Assets Not Realized

100,000

Old Receivables, net

New Receivables, net
Depreciable Assets

Supplementary Charges

Supplementary Items
Supplementary Credits

Old Current Payables

P 31,000

Liabilities Liquidated
Old Current Payables

Net Loss

22,000
35,000
96,000

P 7,000

Liabilities
Liabilities to be Liquidated
P 31,000

Liabilities Not Liquidated

Old Current Payables

P 28,000
65,000
15,000
100,000

Old Current Payables

P 65,000

Liabilities Incurred
P 34,000
P433,000

________
P 433,000

Problem X
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20x5
Assets
Cash
Non-Cash
P 4,000
P720,000

Assets
Beginning balances assigned 5/1/x5
Cash Receipts:
Collection of Accounts Receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts pay.
Partial payment of bank loan
Ending balance

Assets
Beginning balances assigned
5/1/X5Receipts:
Cash
Collection of Accounts
Receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts
pay
Partial payment of bank loan
Ending balance

Fully
Secured
P240,000

Partially
Secured
P270,000

60,000
170,000
20,000
70,000

(70,000)
(200,000)
(340,000)
(100,000)

(60,000)
(170,000)
(70,000)
P24,000

P10,000

Liabilities
Unsecured
With
Without
Priority
Priority
P94,000
P0

(10,000)
(30,000)
(80,000)
(30,000)

(240,000)
(60,000)
(180,000)
________
(90,000) ________
P
0 P
0 P34,000
P
0

Owner's
Equity
P120,000

10,000
20,000
P30,000

________
P (30,000)

Multiple Choice Problems

1. d since there is parent and subsidiary relationship, any intercompany accounts are
eliminated from consolidated point of view.
2. a - [P90,000 + P36,000 + P10,000 P45,000 = P91,000 total estimated amount available; P91,000
(P4,500 + P10,000) = P76,500 estimated amount available for unsecured, non-priority
creditors; P76,500 P90,000 = 0.85]
3. c it is a partially secured liability
4. d [(P1,110,000 P780,000) + P960,000] P210,000 = P1,080,000
5. b P25,000 + [.30 x (P75,000 P25,000)] = P40,000
6. d (P555,000 P390,000) + P480,000 = P645,000 P105,000 = P540,000
7. b P30,000 + [.30 x (P90,000 P30,000)] = P48,000
8. c [ P110,000 + (P150,000 P110,000) x 40%] = P128,000

9. d
10. c P60,000 + [(P120,000 + P6,000) (P30,000 + P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 (P150,000 + P7,000)] = P113,000 (P10,000 + P10,000)
= P93,000
12. c P93,000/P121,000 = 77% rounded.
13. a
Net Free Assets:
(P700,000 P300,000) + P70,000 + P230,000 = P700,000 P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 P300,000) + P600,000 = P700,000
14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000
+ Liq. expenses P40,000 = P165,000.
15. c

Statement of Realization and Liquidation

Assets to be Realized.
Assets Acquired..
Liabilities Liquidated.
Liabilities Not Liquidated.
Supplementary charges/
debits

P 1,375,000
750,000
1,875,000
1,700,000

Assets Realized..P 1,200,000

Assets Not Realized 1,375,000
Liabilities to be Liquidated. 2,250,000
Liabilities Assumed..
1,625,000
Supplementary credits
2,800,000

3,125,000

P 8,825,000

P 9,250,000
Net Gain.. P 425,000

16. No requirement
17. c
Total Liabilities (refer to Liabilities not liquidatedNo. 14) P1,700,000
+: Stockholders Equity (P1,500,000 P500,000) 1,000,000
Total LSHE = Total Assets P 2,700,000
-: Noncash assets (refer to Assets not realized-No. 14). 1,375,000
Cash balance, endingP1,325,000
18. P440,000
Total Free Assets:
Fully secured:
Land and building: P650,000 (P300,000 + P20,000) = P 330,000
Free assets:
Cash
10,000
Equipment
100,000
Or,
Total estimated proceeds
Less asset proceeds claimed by secured
creditors:

P440,000
P910,000

Notes payable and interest (from

proceeds of receivables and inventory)
Mortgage payable and interest (from
proceeds of land and building)
Total available to unsecured claimants/total free

P150,000
320,000

19. P410,000
Total available to unsecured claimants/total free
Less distributions to unsecured claims
with priority:
Wages payable
Taxes payable
Amount available for unsecured
claims/net free assets

470,000
P440,000

P440,000
P 10,000
20,000

30,000
P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) (P500,000 + 30,000), or

Unsecured portion of notes payable and
interest (P500,000 + P30,000 P150,000)
Accounts payable
Total claims of unsecured creditors

P380,000
260,000
P640,000

21. 64.1%
Dividend to unsecured creditors
P410,000 P640,000 = 64.1%
22. P320,000 = P300,000 + P20,000
23. P393,580
Unsecured portion of notes payable and
interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
Total Received

P380,000
64.1%
P243,580
150,000
P393,580

Dividend to note holders: P393,580 P530,000 = 74.3%

24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to roundingoff)
27. P230,000
Net free assets (No. 19)
P410,000
Less: Unsecured creditors without priority (No. 20)
640,000
P230,000
28. P340,000 = P910,000 P1,250,000
29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)
30. P60,675 you may the same procedure in Nos. 18 to 29 to solve this problem, the following is
the formal presentation of statement of affairs
Estimated
Net
Realizable
Value

Estimated Amt
Avail for
Unsecured
Creditors

Estimated
Gain or
(Loss)on
Liquidation

Book
Value Assets
Assets pledged with fully secured
creditors:
98,500
Land and Bldg
92,800
5,800
Investment in Calandir
15,000
Total
107,800
Assets pledged with partially
secured creditors:
41,000
Inventory
20,000
43,000
Equipment
8,000
Free Assets:
1,850
Cash
1,850
21,200
Accounts Rec
17,000
15,000
Note Rec
15,000
Estimated Amount Avail for unsecured creditors
with and without priority
Less unsecured creditors with priority
Estimated amounts for unsecured creditors
without priority (Net Free Assets):
Net Realizable Amount Avail
_______
Deficiency
_______
226,350
169,650
Book Liabilities
Value and Owners Equity
Fully Secured Creditors:
600
Accrued Mtg Interest
70,000
Mortgage Payable
375
Accrued N/P Interest
10,000
Note Payable
Total
Partially Secured
Creditors:
50,000
Accounts Payable
Unsecured Creditors with
Priority:
3,775
Accrued Payroll
Unsecured creditors without
Priority:
40,625
Accounts Payable
10,000
Other Accrued Liabilities
185,375
Totals
40,975
Owner Equity
226,350

31.
32.
33.
34.
35.
36.
37.
38.

Estimated
Secured
Amount

22,200
4,625

(5,700)
9,200

(21,000)
(35,000)
1,850
17,000
15,000

0
(4,200)
0

60,675
(3,775)
56,900
15,725
72,625

_______
(56,700)

Estimated Unsecured Amount

With
Without
Priority
Priority

600
70,000
375
10,000
80,975
28,000

22,000
3,775

_______
108,975

3,775

P56,900 refer to No. 30 for computation

P72,625 refer to No. for computation
Dividend - P56,900/P72,625 = P.78 refer to No. 30 for further computation
P80,975 refer to No. 30 for computation
P45,160 = P28,000 + (P22,000 x 78%)
P3,775
P39,487.50 = 78% x (P40,625 + P10,000)
P169,397.50
No. 34..P 80.975

40,625
10,000
72,625

No. 35.. 45,160

No. 36..
3,775
No. 37.. 39,487.50
P169,397.50 (discrepancy around P250 plus due to rounding-off)
39. P15,725 refer to No. 30 or P56,700, estimated net loss P40,975, owners equity
40. P56,700 refer to No. 30 or P169,650 P226,350
41. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)
42. P22,475
Liabilities
Unsecured
Assets
Fully
Partial
With Without
Cash Noncash Secured Secured
Priority
Priority
6/1/x5 Balances:
1,850
224,500
80,975
50,000
3,775
50,625
Cash
Receipts:
Securities Sale
16,000
N/R Collected
15,000
Equipment
7,000
Sale
Inventory Sale
22,000
Cash Disbursements:
Bank Loan
(10,375)
Part Pyt-A/P
(29,000)
6/30 Balance
22,475

Owners'
Equity
40,975

(5,800)
(15,000)
(43,000)

10,200
0
(36,000)

(41,000)

(19,000)

---------119,700

(10,375)
--------70,600

(50,000)
0

------3,775

21,000
71,625

---------(3,825)

43. P119,700 refer to No. 42

44. P70,600 refer to No. 42
45. None refer to No. 42
46. P3,775 refer to No. 42
47. P71,625 refer to No. 42
48. (P3,825) deficit refer to No. 42
49. P150,900

Book
Value
57,000
174,000
6,000
900
90,000

Estimated
Net
Realizable
Assets
Value
Assets pledged with fully secured creditors:
Accounts receivable (net)
45,000
Land, plant and equipment (net)
150,000
Total
195,000
Free assets:
Notes receivable
6,000
Accrued interest receivable
900
Inventories (90,000 x 60%)
54,000
Estimated
amount
available for
unsecured creditors with and
without priority
Less unsecured creditors with priority
Estimated amounts for unsecured
creditors without priority:

Estimated
Amount
Available for
Unsecured
Creditor

Estimated
Gain or
(Loss) on
Liquidation

12,600
77,400

(12,000)
(24,000)

6,000
900
54,000

0
0
(36,000)

150,900
(26,900)

Net realizable amount available

Deficiency
327,900

124,000
26,000

Totals

255,900
Estimated
Secured
Amount

Book
Value
3,600
69,000
2,400
30,000
24,900
0
0
18,000
6,000
126,000

Liabilities and Owners' Equity

Fully secured creditors:
Accrued interest
Note payable
Accrued interest
Note payable
Total
Unsecured creditors with priority:
Wages payable
Administration fees accountants
fee
Unsecured creditors without priority:
Accrued interest
Cash overdraft
Notes payable
Accounts payable

279,900
Totals
48,000 Owners' equity--see Note A
327,900
Note A: Includes the effect of the P2,000 professional fee.

150,000

(72,000)

Estimated Unsecured
Amount
With Priority

Without
Priority

3,600
69,000
2,400
30,000
105,000
24,900
2,000

--------

--------

0
18,000
6,000
126,000

105,000

26,900

150,000

50. P124,000 refer to No. 49

51. P150,000
52. 82.67% = P124,000/P150,000
53. P105,000
54. None
55. P26,900
56. P124,005 = P150,000 x 82.67%
57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)
58. P26,000 = (P72,000 + P2,000 unrecorded ) P48,000 or P150,000 P124,000
59. P72,000 refer to No. 49
60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses
Quiz - VI
1. P96,000
............................................................................ Claims of partially secured creditors
........................................................................................................................... P 120,000
............................................... Current value of assets pledged with these creditors
................................................................................................................................(80,000)
.......................................................................................... Deficiency that is unsecured
........................................................................................................................... P 40,000
............................................................................. Claims of other unsecured creditors
................................................................................................................................ 360,000
................................................................................. Total unsecured creditors claims
........................................................................................................................... P 400,000

.................................................................. Amount available to unsecured creditors:

............................................... Excess left over after paying fully secured creditors
.................................................................................................... (P195,000 P150,000)
.............................................................................................................................. P 45,000
......................................................... Current value of free assets (net of P45,000 to
.................................................................................................... creditors with priority)
................................................................................................................................ 115,000
................................................................. Amount available to unsecured creditors
.............................................................................................................................. P160,000
Settlement to unsecured claims per dollar (P160,000/P400,000)

.40

.15

Total distribution to partially secured creditors:

Current value of assets pledged
P 80,000
Deficiency of P40,000 P.40
16,000
P 96,000
2. P144,000 = P360,000 x 40%
3. P56,000
............................................................................ Claims of partially secured creditors
............................................................................................................................. P 90,000
............................................... Current value of assets pledged with these creditors
................................................................................................................................(50,000)
.......................................................................................... Deficiency that is unsecured
............................................................................................................................. P 40,000
............................................................................. Claims of other unsecured creditors
................................................................................................................................ 200,000
................................................................................. Total unsecured creditors claims
P 240,000
.................................................................. Amount available to unsecured creditors:
............................................... Excess left over after paying fully secured creditors
.................................................................................................... (P300,000 P250,000)
............................................................................................................................. P 50,000
......................................................... Current value of free assets (net of P60,000 to
.................................................................................................... creditors with priority)
................................................................................................................................(14,000)
................................................................. Amount available to unsecured creditors
............................................................................................................................. P 36,000
Settlement to unsecured claims per peso (P36,000/P240,000)
Total distribution to partially secured creditors:
Current value of assets pledged
P 50,000
Deficiency of P40,000 P.15
6,000
P 56,000
4. P30,000 = P200,000 x 15%
5. P35,000 = P20,000 + (P70,000 P20,000) x 30%

6. P96,000 = Free assets P220,000 - priority claims P100,000 = P120,000

P120,000/P300,000 unsecured = payment of 40% on unsecured peso
40% x P240,000 A/P = P96,000
7. P474,000 = Land and building sold for P450,000 leaves P60,000 unsecured still owing. 40% x
P60,000 = P24,000
8. P295,000 = P200,000 + P95,000
9. P42,950 - (P10,950 + P2,000 + P20,000 + P10,000)
10. P76,050 - Excess of salaries, P1,050 + notes pay in excess of security P25,000 + accounts pay
P50,000
11. P163,800
Free assets:
Other assets
P104,000
Excess from assets pledged with secured
(P150,800 P91,000)
59,800
P163,800
12. P109,200
Total free assets
P163,800
Less: Liabilities with priority
54,600
P109,200
13. P364,000
Unsecured creditors:
Excess of partially secured liabilities over
Pledged assets (P169,000 P65,000)
P104,000
Unsecured creditors
260,000
P364,000
14. P96,200
Payment of partially secured debt:
Value of pledged assets
P 65,000
30%* of remaining P104,000
31,200
P 96,200
*P109,200/P364,000 = 30%

15. P78,000
Cash
Excess of pledged with secured liabilities
(P117,000 P104,000)
16. P52,000
Free assets after of liabilities with priority:
Total free assets
Less: Liabilities with priority
17. P260,000
Unsecured creditors:
Excess of partially secured liabilities over
pledged assets (P195,000 P169,000)
Accounts payable

P 65,000
13,000
P 78,000
P 78,000
26,000
P 52,000

26,000
234,000
P 260,000

18. P174,200
Payment on bond:
Value of pledged assets
20%* of remaining P26,000

P 169,000
5,200
P 174,200

Free after priority: P52,000/P260,000 = 20%

19. P247,000
Free assets
Excess from assets pledged with fully secured
(P260,000 P195,000)
Amount available
Unsecured liabilities with priority
Net free assets / available for unsecured

P390,000
65,000
P455,000
( 208,000)
P247,000

20. P32,000
Cash
Mortgage payable, paid in full

Note payable to bank, secured portion

Priority claims (P16,000 of administrative costs +

P2,000 of customer deposits + P4,000 property tax)
Available for unsecured nonpriority claims

120,000
60,000 )
60,000
30,000 )
30,000
22,000 )
8,000

Unsecured, nonpriority claims:

Unsecured portion of note payable to bank
Accounts payable
Total unsecured, nonpriority claims

10,000
30,000
40,000

P8,000 cash/P40,000 claims = P.20 on the dollar

Amount paid to bank:
P30,000 for secured portion + (P10,000 x .20) for unsecured
portion =

32,000

21. P15,400
Mortgage note receivable
Less: Portion secured by equipment
Unsecured portion

Estimated recovery on secured portion

Estimated recovery on unsecured portion
(P28,000 x P.30) =
Recovery on mortgage note receivable

35,000
7,000
28,000

7,000
8,400
15,400

22.
Mortgage note receivable
Less: Portion secured by marketable securities
Unsecured portion
Estimated recovery on secured portion
Estimated recovery on unsecured portion
(20,000 x P.25) =

80,000
60,000
20,000
60,000
5,000

Recovery on mortgage note receivable

23. P30,000
Book value of assets
Net realizable of assets
Less stockholders' equity
(P700,000 P400,000)
Deficiency

65,000

P700,000
370,000
P330,000
300,000
P 30,000

24. P.75 Dividend = P370,000 P250,000 P30,000 / P400,000 P250,000 P30,000

25. P8,500 = P7,000 + [(P9,000 P7,000) x .75]
26. P410,000
Total estimated proceeds
P910,000
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory)
P150,000
Mortgage payable and interest (from
proceeds of land and building)
320,000
470,000
Total available to unsecured claimants.
P440,000
Less distributions to unsecured claims
with priority:
Wages payable
P 10,000
Taxes payable
20,000
30,000
Amount available for unsecured creditors
P410,000
27. 64.10%
Unsecured portion of notes payable and
interest (P500,000 + P30,000 P150,000)
Accounts payable
Total claims of unsecured creditors

P380,000
260,000
P640,000

Dividend to unsecured creditors:

P410,000 P640,000 = 64.1%
28. Unsecured portion of notes payable and
Interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
Total Received
Dividend to note holders: P393,580 P530,000 = 74.3%
THEORIES
1.
debtor
2. P5,000
3.
inability to pay debts as they mature
4.
a.
administrative costs
b.
certain postfiling gap claims in involuntary filings
c.
wages, salaries, and commissions

P380,000
x 64.1%
P243,580
150,000
P393,580

5.
6.
7.
8.
9.

10.
11.
12.
13.
44.

45.
46.
47.
48.

d.
employee benefit plans
e.
deposits by individuals
f.
taxes
infrequent
two-thirds, more than one-half
fraudulent, preferential
realization and liquidation
False
False
False
True
False

a
c
c
a
b

14.

15.
16.
17.
18.

False
True
True
True
True

c
50. d
51. a
52. d
53. b
49.

19.

20.
21.
22.
23.
54.

55.
56.
57.
58.

False
False

c
a
a
d
c
d

b
a

24.

25.
26.
27.
28.

c
a
d
c

59. a
60. c

29.

30.
31.
32.
33.

b
b
b
a

34.

35.
36.
37.
38.

b
d
b
c

39.

40.
41.
42.
43.

b
c
b
a