ADVANCED ACCOUNTING PART 1

CORPORATE LIQUIDATION

Corporate Liquidation

Problem 1 = The balance sheet of Evergreen Company at June 30, 2008, contains the following items:

Assets
Cash 80,000
Accounts receivable-net 140,000
Inventories 100,000
Land 260,000
Building – net 200,000
Machinery – net 120,000
Patent 100,000
Total 1,000,000
Liabilities and Stockholders’ Equity
Accounts payable 220,000
Wages payable 120,000
Taxes payable 20,000
Mortgage payable 300,000
Interest on mortgage payable 30,000
Notes payable 100,000
Interest payable 10,000
Capital Stock 400,000
Retained earnings (deficit) (200,000)
Total 1,000,000

The company is in financial difficulty, and its stockholders and creditors have requested a statement of affairs for
planning purposes. The following information is available:
 The company estimates that P126,000 is the maximum amount of collectible for the accounts receivable.
 Except for 20% of the inventory items that are damaged and worth only 4,000, the cost of other items are
expected to be recovered in full.
 The land and building have a combined appraisal value of P340,000 and are subject to the P300,000
mortgage and related accrued interest.
 The appraised value of the machinery is P40,000.

Determine the following:

1. Total free assets
2. Net free assets or Amount expected to be available for unsecured creditors
3. Estimated Deficiency to Unsecured Creditors
4. Estimated Settlement per peso of Unsecured Creditors
5. How much cash should each class of creditor received
a. Fully secured creditors
b. Partially secured creditors
c. Unsecured liabilities with priority
d. Unsecured liabilities without priority
Problem 2 = The unsecured creditors of Insolve Corporation filed a petition on July 1, 2008 to force Insolve
Corporation to 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 71,400 71,400
Accounts receivable 250,000 15% of the accounts receivable is
Allowance for doubtful accounts -20,000 estimated to be uncollectible.
Estimated selling price, P340,000
Inventories 420,000 which will require additional cost of
P50,000
Prepaid expenses 40,000 None
Investments 180,000 110,000
Land 210,000 An offer 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 None
Total Assets 1,831,400

Equities
Accounts payable 670,000
Wages payable 3,400
Notes payable 160,000
Accrued interest on notes 5,000
Mortgage payable, secured by land and
400,000
buildings
Capital Stock 800,000
Additional paid in capital 80,000
Deficit -287,000
Total Equities 1,831,400

Additional information:
a. The books do not show the following accruals (unrecorded expenses)
Taxes P16,400
Interest on mortgage 10,000
b. The investment have been pledged as security for holder of the notes payable
c. The trustee fees and other costs of liquidating the estate are estimated to be P60,000

Determine the following

6. Total free assets
7. Net free assets or Amount expected to be available for unsecured creditors
8. Estimated Deficiency to Unsecured Creditors
9. Estimated Settlement per peso of Unsecured Creditors
10. How much cash should each class of creditor received
a. Fully secured creditors
b. Partially secured creditors
c. Unsecured liabilities with priority
d. Unsecured liabilities without priority
Problem 3 = Zero Na Corporation 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 1,375,000
Assets acquired 750,000
Assets realized 1,200,000
Assets not realized 1,375,000
Liabilities:
Liabilities liquidated 1,875,000
Liabilities not liquidated 1,700,000
Liabilities to be liquidated 2,250,000
Liabilities assumed 1,625,000
Revenues and Expenses:
Supplementary charges/debits 3,125,000
Supplementary credits 2,800,000

11. The net gain (loss) for the three-month period ending March 31 is:
12. Assuming that the common stock and deficits are P1,500,000 and P500,000, respectively, how much is the
cash ending balance?
13. Using the assumptions in no. 12, compute for the cash balance beginning.

Problem 4 = The Moon Company has the following:

Unsecured creditors P 230,000

Liabilities with priority 110,000
Secured liabilities:
Debt one, P210,000; value of pledged asset P 180,000
Debt two, P170,000; value of pledged asset 100,000
Debt three, P120,000; value of pledged asset 140,000

The company also has a number of other assets that are not pledged in any way. The creditors holding debt two
want to receive at least P142,000.

14. For how much do these free assets have to be sold so that debt two would receive exactly P142,000?

Problem 5 = Naubos Company has the following information:

Liabilities:
Accounts payable 240,000
Taxes payable 25,000
Salaries payable 75,000 , including 25,000 advances from officers
Notes payable 500,000, of which P250,000 is fully secured
Interest notes payable 25,000, evenly earned by creditors
Mortgage payable 1,000,000, partially secured (NRV of assets pledge, P512,000)
Interest on Mortgage payable 50,000

Additional information:
a. Total non-cash assets at book value P1,833,800
b. Cash P120,000
c. Estimated liquidating expenses P125,000.

If partially secured creditor received P834,800, determine the following?

15. Loss on realization
16. Total Free Assets
17. Total NRV of Total Assets
Problem 6 = The following information was available on March 31, 2014 for Bankrupt Corporation, which they
cannot pay their liabilities when they are due:

Carrying Amounts
Cash 16,000
Trade accounts receivable (net): Current fair values 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 notes, payable, including accrued interest of P1,600 201,600
Common Stock, P5 par 400,000
Deficit -237,600

18. The estimated gains/(losses) on realization of assets:

19. How much is the total cash received by creditors whose claims is less than 100%?
20. How much is the total cash received by creditors whose claims is 100%?