CHAPTER 7

Statement of
Realization and
Liquidation

Exercise 7-1

ASSETS

LIABILITIES

The following balance sheet is prepared for the

P 60,000
Accounts
P
Walana Co. on December 1, whenPayable
C. Gonzales275,000
is
appointed trustee to take
over control:
Receivables
180,000
Share Capital
Cash

250,000
Merchandise
Furnitures and Fixtures
(net)
Total

200,000

Retained
Earnings

(10,000)

75,000
P 515,000

Total

P
515,000

Transactions in December are summarized as

follows:
Cash Receipts:
Sales of
Merchandise

P 120,000

Collection of
receivables
Company
receivables
Trusteeship

P92,500
2,250

94,750

claims
P 214,750
Cash
Disbursements:
Purchase of
merchandise

3,750

Expenses

7,000

P 10,750


Sales of merchandise on account in December
totaled P9,000. Company receivables of P3,250
were written off as worthless. At the end of
December the merchandise on hand is valued at
P112,500. Depreciation of furniture and fixtures
is P1,250.


Instructions:
1. Prepare a statement of realization and
liquidation in conventional form together with
supporting schedules.

At the end of December, assets remaining to be realized

& liabilities to be liquidated are as follows:

Assets
Receivables:
Balance, Dec. 1 P180,000
Add: Sales on account in Dec.
9,000
P 189,000
Deduct: Collections of receivables
Company receivables
P92,500
Trusteeship claims
2,250
Balances determined to be
uncollectible
3,250
98,000
Balance, Dec. 31
P 91,000

Merchandise:
*At the end of December the merchandise on
hand is

valued at P112,500

Furniture & Fixtures:

Book Value
Depreciation
F&F, Dec. 31

P75,000
(1,250)
P 73,750

Walana Co. Debtor

C. Gonzales, Trustee
Statement of Realization & Liquidation

For the month ended December 31, 20

Assets

Assets to be realized:

Assets Realized:

(1) Furniture & Fixture

Receivables
(1)
Merchandise
(1)

P 75,000
180,000

(2) Receivables, old

200, 000

Assets Acquired:

(2) Receivables, new

2,

Assets not realized:

(3) Receivables, new

9, 000
Receivables, new
Furniture & Fixtures

P 92

Merchandise
73, 750

Receivables, old
6,750

112,500

84,

NOTES
Asset Section
Page 328 no.1, b. Remaining assets are listed as debits
in the asset section of the statement under the heading
assets to be realized.
Page 328 no.2, a. Sales on Account are reported to
Accounts receivable in the assets section under the
heading Assets acquired and a credit to sales in the
revenue & expense section under the heading
supplementary credits
Page 328 no.3, a. Cash receipts are reported as debits in
the cash schedule and as credits either in the asset
section under the heading assets realized or in the
revenue and expense section under the heading
Supplementary credits whichever is appropriate.

Liabilities
Liabilities not liquidated:
Liabilities to be liquidated:
Accounts Payable P275,000
Accounts payable

P 275,000

Revenues & Expenses

Supplementary Charges:
(4) Purchases
3,750
(5) Expenses
7,000
P 749,750
Net Gain
26,250
Total
P 776, 000

Supplementary Credits:
(1) Sales on account
(3) Sales for cash

Total

P 776,000

9,000
120, 000

Liabilities Section
Page 328 no.1, c. Liabilities are listed as credits in the
liability section of the statement under the heading
Liabilities not liquidated.
Page 328 no.4, b. Liabilities still to be liquidated are
listed under the liability section heading liabilities not
liquidated.

Revenues and Expense Section

Page 328 no.2, b. Purchases on account are reported
as a debit to purchases in the revenue and expense
section under the heading Supplementary charges.
Page 328 no.2, a. Sales on account are reported as
credit to sales in the revenues and expense section
under the heading supplementary credits.

 Page 328 no.3, a. Cash receipts are reported as credit

in the revenue and expense section under the
heading supplementary credits.

Walana Co. Debtor

C. Gonzales, Trustee
Supplementary Schedules to Accompany Statement of
Realization and Liquidation
For the month ended December 31, 20
Cash
Dec. 1 (1) Balance
P 60,000 Dec 1-31 Payment of Purch. P
3,750
1-31 (3) Cash sales merch.
120,000
Payment of
Expenses
7,000
(3) Collection of rcvbls.
94,750
Dec 31 Balance
264,000
P 274,750
P274,750

Jan 1

Balance

P 264,000

Share Capital
Dec. 1
Balance

P 250,000

Retained Earnings
Dec. 1 (1)Balance
P 10,000 (5) Net gain for Dec.
26,250

Page 328 no.1, a. The cash balance is

reported as a debit in the cash schedule.

Page 328 no.3, a. Cash receipts are reported

as debits in the cash schedule
Page 328 no.1, a. Capital balances are
reported as credits in appropriately titled
capital schedules.

 The gain of P 26,250 emerges from these categories as

Loss or
follows
(Gain)

Assets:
Assets to be
realized

P455,000

Assets acquired
9,000

Proceeds from
asset realization P94,750
Assets not
realized

P464,000

277,250
P372,000

92,000

Liabilities:
Liabilities not
liquidated

P275,000

Liabilities to be
liquidated

P 275,000

P10,750

Supplementary
credit

P129,000

(118,25
0)

Revenues
&Expenses:
Supplementary
Charges

(P26,25
0)

Walana Co. Debtor

Balances per Statement of Realization and
Liquidation
Dec. 31, 200_
Assets

Liabilities

Cash
P264,000
Liabilities not liquidated
P275,000
Assets not Realized
277,250
Capital Stock
250,000
Retained Earnings
16,250
Total Assets

P541,250
Stockholders Equity

Total Liabilities and

P541,250

EXERCISE 7-2 REPORTING OF ITEMS IN

THE STATEMENT OF REALIZATION AND
LIQUIDATION
BELOW ARE TRANSACTION FOR THE ARIBA SALES CO. IN
BANKRUPTCY:
A. SALE OF MERCHADISE ON ACCOUNT, P125,000.
B. COLLECTIONS ON ACCOUNTS RECEIVABLE, P67,500;
UNCOLLECTIBLE ACCOUNTS OF P2,500 ARE WRITTEM
OFF:
C. SALE OF SECURITIES COSTING P85,000 FOR P82,000.
D. PURCHASE OF MERCHANDISE ON ACCOUNT, P87,500.
E. PAYMENT OF SELLING EXPENSES, P23,750, OF WHICH
P4,000 HAD ACCRUED PRIOR TO BANKRUPTCY.
F. DEPRECTION OF FURNITURE AND FIXTURES, P1,375.

G. TRADE OF DELIVERY TRUCK WITH A BOOK VALUE OF

P6,000 FOR A NEW TRUCK COSTING P11,000; P5,000 IS
ALLOWED ON THE TRADE-IN, AND THE BALANCE IS PAID
IN CASH.
H. PAYMENTS OF ACCOUNTS PAYABLE, P49,000, AFTER A
P1,000 DISCOUNT.

INSTRUCTIONS: INDICATE HOW THE PRECEDING

TRANSACTIONS WILL BE REPORTED ON THE STATEMENT
OF REALIZATION AND LIQUIDATION AND THE
SUPPLEMENTARY SCHEDULES PREPARED IN THE
CONVENTIONAL FORM.

A. ACCOUNTS RECEIVABLE ASSETS ACQUIRED 125,000

SALES SUPPLEMENTARY CREDITS
125,000
. Page 328, Number 2, Letter A.
B. CASH CASH SCHEDULE
67,500
ACCOUNTS RECEIVABLE ASSET REALIZED

67,500

. Page 328, Number 3, Letter A.

C. CASH CASH SCHEDULE
SECURITIES ASSET REALIZED

82,000
82,000

. Page 328, Number 3, Letter A.

D. PURCHASES SUPPLEMENTARY CHARGES
87,500
ACCOUNTS PAYABLE LIABILITIES ASSUMED
87,500
. Page 328, Number 2, Letter B.

E. ACCRUED SELLING EXPENSE LIABILITIES LIQUIDATED 4,000

SELLINGS EXPENSE SUPPLEMENTARY CHARGES 19,750
CASH CASH SCHEDULE
23,750
Page 328, Number 3, Letter B.
F. NO ENTRY FOR THE DEPRACIATION; THE BALANCE OF THE
FURNITURE AND FIXTURES IS REDUCED BY P1,375 AND IS
ENTERED IN THE ASSETS TO BE REALIZED SECTION.
Page 328, Number 1, Letter B.
G. TRUCK ASSETD ACQUIRED
CASH CASH SCHEDULE
TRUCK ASSETS REALIZED

11,000
6,000
5,000

Page 328, Number 2, Letter A.

H. ACCOUNTS PAYABLE LIABILITIES LIQUIDATED 49,000
CASH CASH SCHEDULE
49,000
Page 328, Number 3, Letter B.

EXERCISE 7-3

DIANZON, GLADYS T.

ABC Company
Statement of Realization and Liquidation
For the period July 1, 2014 to August 12, 2014

ASSETS

LIABILITIES

Secured
Partiall
Full
Noncas
y
Cash
Secur
h
Secur
ed
ed
P590,0 P200, P175,
Beg. Balances P12,000
00
000
000
(25,00
Sale of inventory 30,000

0)

Unsecured

With W/O Owner

Priorit Priorit
's
y
y
Equity
P54,0 P150, P23,0
00
000
00

5,000

Classification of Liabilities

Fully Secured
Partially Secured
Unsecured
With Priority
Without Priority

Receivables collected amount to

P39,000. Receivables with a
book value of P15,000 that were
not allowed for
were written off.
ASSETS

LIABILITIES
Secured

Cash

Noncas
h

Collection of P39,00 (54,000

rec'l
0
)

Full
Secured

Owner'
s
Equity

Unsecured

Partiall
y
With W/O
Secure Priority Priority
d
(15,00
0)

A P12,000 loan that was fully

secured was paid off

ASSETS

LIABILITIES
Secured

Payment of
loan

Unsecured

Partiall
Full
Noncas
y
With
W/O
Cash
Secure
h
Secure Priority Priority
d
d
(12,00
(12,00

0)
0)

Owner'
s
Equity

A valid claim is received from a

leasing company seeking
payment of P15,000 for
equipment
rentals
ASSETS

LIABILITIES

Secured
Unsecured
Partiall
Full
Noncas
y
With
W/O
Cash
Secure
h
Secure Priority Priority
d
d
Equipment
rental

15,000

Owner'
s
Equity

(15,00
0)

Securities costing P18,000 are sold for

P23,000, minus brokerage fee of P500

ASSETS

Sale of
Securities

LIABILITIES

Owner'
s
Equity

Secured
Unsecured
Partiall
Full
Noncas
y
With
W/O
Cash
Secure
h
Secure Priority Priority
d
d
(18,00
22,500

4,500
0)

Depreciation on machinery is
P3,200

ASSETS

LIABILITIES

Secured
Unsecured
Partiall
Full
Noncas
y
With
W/O
Cash
Secure
h
Secure Priority Priority
d
d
Depreciation
on machinery

(3,200)

Owner'
s
Equity

(3,200)

Payments on accounts payable

total P25,000 of which the entire
amount was secured by
sold
inventory
ASSETS

LIABILITIES
Secured

Cash

Payment of A/P (25,000)

Noncash

Owner's
Equity

Unsecured

Full
Partially With
W/O
Secured Secured Priority Priority

(25,000)

Machine that originally

cost P85,000 and has a
book value of P45,000

sold for P36,000

ASSETS

Secured
Cash Noncash
Sale of
Machinery

36,000 (45,000)

Owner's
Equity

LIABILITIES
Unsecured

Full
Partially With
W/O
Secured Secured Priority Priority

(9,000)

Proceeds from the sale of

machinery are remitted to the
bank, which holds a P50,000
loan on
machinery
ASSETS

Secured

Cash

Payment of loan (36,000)

Noncash

Owner's
Equity

LIABILITIES
Unsecured

Full
Partially With
W/O
Secured Secured Priority Priority
(36,000)

Proceeds from the sale of

machinery are remitted to the
bank, which holds a P50,000
loan on
machinery
ASSETS

Secured

Loan
reclassification

Cash

Noncash

Owner's
Equity

LIABILITIES
Unsecured

Full
Partially With
W/O
Secured Secured Priority Priority
(14,000)

14,000

ASSETS

12,000
30,000

Secured
Unsecured
Full
Partially With
W/O
Noncash
Secured Secured Priority Priority
590,000 200,000 175,000 54,000 150,000 23,000
(25,000)

5,000

39,000

(54,000)

(15,000)

(12,000)

(12,000)

15,000

(15,000)

22,500

(18,000)

4,500

(3,200)

(3,200)

(25,000)

(25,000)

36,000

(45,000)

(9,000)

(36,000)

(36,000)

(14,000)

14,000

Cash
Beg. Balances
Sale of inventory
a)Collection of
rec'l
b)Payment of loan
c)Equipment
rental
d)Sale of
Securities

e)Depreciation on
machinery

f)Payment of A/P
g)Sale of
Machinery
h)Payment of loan
Loan

Owner's
Equity

LIABILITIES