CHAPTER 7 - Corporation in Financial Difficulty - Liquidation

120 Chapter 7

CHAPTER 7 MULTIPLE MUL TIPLE CHOICE ANSWERS AND SOLUTIONS 7-1: c

Amount realized secured by inventory Unsecured claim (P10,000 x 25%)

P 30,000 2,500 P 32,500

Total amount received 7-2: d

Amount realized secured by inventory Unsecured claim (P!!,000 x "5%)

P120,000 ##,000 P186,00 0

Total amount received 7-3: d (P15,000,000 + P200,000) 7-4: a

$ealizable value &urrent assets 'and and buildin 'ess mortae *ayable

P 50,000 P20,000 200,000

0,000

+otal 'ess accounts *ayable

0,000 1#0,000

Estimated deficiency to unsecured unsecured creditors

P 0,000

7-5: c

+otal realizable value to unsecured creditors (P0,000)-total unsecured &laims (P1#0,000) . 56!25" 7-6: a

/ree assets &urrent assets uildins and eui*ment +otal 'iabilities it *riority Administrative ex*enses 4alary *ayable ncome taxes +otal

P 33,000 110,000

P13,000

P 20,000 #,000 !,000 P 3,000

Corporation in Financial Difficulty – Liquidation

121

/ree assets a6ter *ayment o6 liabilities it *riority (P13,000 7 P3,000) Unsecured liabilities 8otes *ayable Accounts *ayable onds *ayable +otal

P10,000 P 30,000 !3,000 "0,000 P1!3,000

Percentae o6 Unsecured liabilities to be *aid P10,000 - P1!3,000 . #0% Payment o6 notes *ayable 9alue o6 security (land) #0% o6 remainin P30,000

P 0,000 1!,000

Total collected

P108,000

7-7: c

/ree assets :ter assets ;xcess 6rom assets *leded it secured &reditors (P11#,000 7 P"0,000) +otal

'iabilities it *riority /ree assets a6ter *ayment o6 liabilities it *riority (P12#,000 7 P2,000) Unsecured liabilities ;xcess o6 *artially secured liabilities over *lede Assets (P130,000 7 P50,000) Unsecured creditors +otal

P !0,000 #,000 P12#,000 P 2,000 P !,000

P !0,000 200,000 P2!0,000

$ecovery *ercentae P!,000 - P2!0,000 . 30% Payment o6 *artially secured debt 9alue o6 *leded assets 30% o6 remainin P!0,000 Total collected

P 50,000 2,000 P #,000

122 Chapter 7

7-8: a

+e older o6
Unsecured liabilities Unsecured creditors ;xcess liability o6
P230,000 30,000 "0,000

&as needed 6or tese liabilities

P330,000 #0%

P1!,000

$n order for t%e %older of &e't To to received eactly P1#2,000, t%e ot%er free assets must 'e sold for P308,000! >it tat muc money, te liabilities it *riority (P110,000) can be *aid it te remainin P1!,000 oin to te unsecured debts o6 P330,000= +is #0% 6iure ould insure tat te older o6
;state euity, be= (P100,000 7 P!5,000) 'oss on realization (P100,000 7 P"5,000) Unrecorded liabilities nterest ex*ense Administrative ex*ense

P 15,000 ( 25,000) P 250 ,000

Estate deficit

(

,250)

P( 1#,250)

7-1: c

+otal assets at net realizable value /ully secured liabilities ;stimated administrative ex*ense ;stimated amount available Unsecured claims (P5,000 ? P250) Estimated deficiency to unsecured creditors

P "5,000 (0,000) ( ,000)

P 31,000 (5,250) P 1#,250


123

7-11: !

Assets *leded it 6ully secured creditors /ully secured creditors /ree assets 1#0,000

P1!5,000 130,000

55,000

+otal 6ree assets 'ess 'iabilities it *riority

215,000 35,000

*vaila'le to unsecured nonriority claims

P180,00 0

@acinery $ecoveries o6 unsecured claims (50,000  10,000) B =50

P 10,000 20,000

A"#$%& &# !' ('a)*+'d

P 3,

8otes Payable 'ess nventories

P 23,0 1,200

7-12: !

7-13: !

Unsecured 'iabilities % o6 recovery



,"0 "!%

$ecovery Add nventories

3,#" 1,200 P 22,8.

*mount to 'e received 'y -ood 7-14: a 7-15: a 7-16: ! 7-17: d

 P",000  P30,000  P5",200 C52,000 ? (!,000 B =#5)D  P"2,!00 (112,000 B =#5)

7-18: d

;stimated loss Account $eceivable nventories (2!,000  1!,500) uildin (5,000  22,000) ;ui*ment (5,#00  2,000) Eoodill Pre*aid ex*enses 'ess 4tocFolderGs euity &ommon stocF
3

P !,1#0 ,500 ",000 3,#00 5,#50 30

P #,30

P "2,000 ( 1#,##0)

55,30 P .,000

124 Chapter 7

7-19: d

Accounts $eceivable (3,350  1#, 110) 8otes $eceivable (1!,500  12,500) nventories (!",!50  5,100) Pre*aid ex*enses ;ui*ment (!,!00  ,000) Total estimated loss

P 23,20 #00 2,"50 50 3,!00

P112,#0

7-2: ! P33,50 (5,000  #1,250) on 'and and uildin 7-21: d

+otal /ree Assets alance o6 Assets Pleded to /ully 4ecured &reditor (5,000  0,000) /ree Assets &as Accounts $eceivable nventories ;ui*ment

P 5,000 P 2,"00 1#,110 5,100 ,000

+otal 'ess Unsecured liabilities it *riority (1,!50 ? ,#50) 8et /ree Assets
"2,10 "",10 #,500 P "1,10

P 15,000 12,500 52,500 51,250

2,500 103,"50 H P10#,250 6"

7-22: d

/ully secured (8otes Payable) Partially secured 8otes Payable  P8 Add (2,500 B #"%) Unsecured &reditor it Priority Unsecured &reditor itout Priority (103,"50 B #"%) Total

P 0,000 P12,500 1,#"5

1,1"5 #,500 #,513 P180,188


125

7-23: a

Unsecured creditors itout *riority ;stimated de6iciency to unsecured creditors 'oss on realization ;stimated liuidation ex*enses +otal 4tocFoldersI euity 8et 6ree assets 'iabilities it *riority /ree assets

P1,102,500 551,250 55,125 #0#,3"5 1,000

1#5,3"5 3",125 122,500 P 1,05.,625

7-24: a

;stimated net ain (loss) on realization Eain on realization 'oss on realization ;stimated claims +otal 4tocFolders euity Estimated deficiency

"!,"50 (33#,"00)

(25",50) ( 3,"50) (301,"00) 25,"50 P( 5,.50)

7-25: !

8otes *ayable (1"5,000 7 10,000) Unsecured liabilities (20,000 7 52,500) +otal /ree assets (15",500 ? 210,000) Estimated deficiency

P 35,000 3#",500 02,500 3#",500 35,000

7-26: a

:ld receivable (net) @arFetable securities :ld inventory
P 3!,000 12,000 #0,000 #,000 P206,000

:ld receivable 8e receivable @arFetable securities 4ales o6 inventory Total asset realied

P

7-27: a

21,000 ",000 10,500 "5,000

P153,500

Eain on sale o6 inventory (P"5,000 7 #0,000) 'oss on realization

15,000

7-28: a

@arFetable securities (12,000 7 10,500) +rusteeIs ex*enses
1,500 ,300 1#,000

(21,!00) P( 6,800) Chapter

126 7 SOLUTIONS TO PRO-LEMS

P(#!)'" 7 . 1 Laguna Company Statement of Aairs October 31, 2008

/A0

Book

Estimated Realizable Value

Free Assets

P#",00 50,00

P1",000

Assets Assets *lede 6or 6ully secured creditors P10",000 ==== Plant assets================================================== 'essJ /ully secured liabilities======================  Assets *leded 6or *artially secured creditors 3,000= ==== nventories==================================================

P1!,000

/ree Assets ,000= ===== &as============================================================ #,000= ===== Accounts, receivable=================================== 2,000= ===== 4u**lies=======================================================

P ,000 #,000 1,500

Value

+otal 6ree assets=============================================== 'ess Unsecured liabilities it *riority==========

Creditors' Claim

Liabilities & Stockholders' Equit /ully secured liabilities P50,00======= @ortae *ayable (includin interest, P00) P50,00 Partially secured liabilities 8otes *ayable========================================= ===== P21,000 21,000======= 'ess nventory============================================ 1!,000 Unsecured creditors it *riority >aes *ayable P 5,!00 5,!00======= Pro*erty taxes *ayable================================ 1,200 1,200======= +otal============================================================ Unsecured creditors itout *riority Accounts *ayable======================================== 8otes *ayable========================================= ===== 4tocFoldersG ;uity========================================

P1!,000 reditor rou /0 "ercenta#e

Unsecured

Liabilities

P 3,000

P ",000 #0,000 1,000 7

Amount o! Claim

paid

P#1,500 20,500 P!2,000

Value

#0,000======= 1,000=======

51,500

P#!,500 ",000

8et /ree Assets=================================== ============ ;stimated de6iciency to unsecured creditors (to balance) P1!,000 Book

P!2,000 Amount to

be "aid to be

Unsecured liabilities it *riority==================================== /ully secured creditors===================================================== Partially secured creditors================================================ Unsecured creditors itout *riority================================ * P1!,000 ? (P3,000 B 0="5) . P20,250 /C0 4ee statement o6 a66airs in reuirement (A)

P",000 50,00 21,000 ",000

P",000100=0% 50,00100=0% 20,250 K #=% 5,250 "5=0%


127

P(#!)'" 7 . 2 C C#(#(a&*#% S&a&'"'%& # R'a)*+a&*#% a%d L*$*da&*#% M#%& E%d'd a%$a( 31, 28

Assets to be realized 'and======================== P10,000 uildin================== 3,000 ;ui*ment============== 2!,000 Patents==================== ,00 P20,!00 Assets Acuired==============

P!5,00 0

Assets realized land===================================== P=======0 uildin=======================================0 ;ui*ment !,!00 Patents= 12,000 Assets not realized 'and==== P10,000 3,000 uildin ;ui*ment 13,000

##,000 'iabilities 'iuidated Account *ayable===== P1,000 'oans *ayable========= ",000 120,000 'iabilities not 'iuidated Accounts *ayable==== ##,000 'oans *ayable========= 33,000

21,000

'iabilities to be 'iuidated Accounts *ayable P!0,000 'oans *ayable 0,000

,000

Eain on realization========================= ",#00 #,200

'oss on realization=====================

+otal=============================================== P213,000 P213,000

+otal===========================================

C C#(#(a&*#% a)a%c' S''& a%$a( 31, 28

&as =============================================== P ##,000 'and =============================================== 33,000

P #,"00

Accounts *ayable=========================

10,000

'oans *ayable==============================

3,000

uildin(=========================================

;state de6icit================================

( 2#,300 ) ======================================

;ui*ment

13,000

+otal=============================================== 00

P "2,"00

P "2,"

C C#(#(a&*#% E&a&' D'*c*& a%$a( 31, 28

Eain on realization==================================================================== 'oss in realization ==================================================================== +rusteeGs ex*enses ====================================================================

P ",#00 ( #,200) ( 1,300)

8et ain on realization========================== ========================== ========== ;state de6icit, Lanuary 1, 200!===================================================

P 100 ( 2#,00)

;state de6icit, Lanuary 31, 200!=================================================

P(2#,300)

128

Chapter 7 P(#!)'" 7 . 3

R*+a) C#(#(a&*#% S&a&'"'%& # Aa*( Book

Estimated

A s s e t s Assets *leded to 6ully secured creditors P !0,000=========== 'and and buildin=============================================== 'ess @ortae *ayable====================================== Values

50,000===========

32,000=========== 12,000===========

,000=========== !,000=========== 3#,000=========== 1,000=========== !,000=========== 5,000=========== 1#,000===========

P102,000 3,000

P 5,000

/inised Eoods=================================================== 'ess 'oan *ayable=============================================

P 55,000 50,000

5,000

Assets *leded to *artially secured creditors Accounts receivable (!0% x 30,000)================== +rucFs=================================================================

2,000 3,500

+otals==================================================================

2",500 ,000 #,000 2",000 0 2,500 25,000 #,500

8et 6ree assets========================================================== ;stimated de6iciency to unsecured creditors (to alance)

P 22,000=========== +otal unsecured liabilities======================================== Book Values

/ree Assets &as==================================================================== A$ (20% x 30,000)============================================= nventory 7 @aterials========================================== Pre*aid ex*ense================================================== +rucFs================================================================= ;ui*ment=========================================================== 5ntan(ible============================================================  +otal /ree Assets===================================================== 'ess Unsecured liability it *riority (12,000 ? !,000)

 !1,000

Realizable Value

Free Assets

10!,500

Creditors'

Liabilities and Equit

P12!,500 20,000

Claim

P1!,500

Unsecured Liabilies

P )3,000=========== 50,000===========

/ully secured creditors @ortae *ayable=============================================== 'oans *ayable===================================================== +otal====================================================================

25,000=========== 5,000===========

12,000=========== !,000===========

1,000

Partially secured creditorsG anF 'oan=========================================================== 'ess $eceivable (!0% x 30,000)========================

25,000 2,000

P 1,000

+rucF 'oan========================================================== 'ess trucFs=========================================================

5,000 3,500

1,500

Unsecured creditors it Priority >aes *ayable==================================================== +axes *ayable=====================================================

12,000 !,000

+otals==================================================================

20,000

Unsecured creditors "",000=========== Accounts *ayable================================================ 4tocFolder 'oan================================================ 110,000=========== ( 3!,000 )===========4tocFolder ;uity================================================== P 22,000 Corporation

,000 50,000

"",000 110,000

+otal========================================================================= in Financial Difficulty – Liquidation

1!",000 7

P1!,500 12

P(#!)'" 7 . 4 Maaaa C#(#(a&*#% S&a&'"'%& # Aa*( N#'"!'( 1 Estimate

Book Value P#0,000======== 1!0,000========

Book

20,000 210,000

Creditor's

!!,!00

1,!00 13,!00

8et 6ree asset==================================== =========== ;stimated de6iciency (to balance)==================== +otal================================================================

Assets

P 30,000

/ree assets &as============================================================ P ##,000 Accounts receivable==================================== 13,500 @ercandise inventory================================ 1!0,000 Plant M eui*ment====================================== 330,000 8otes receivable========================================== 10!,300 Patent================================= ========================= 12,000 +otal 6ree assets=========================================== 'ess Unsecured liabilities it *riority==========

 P1,!3,000

Assets Realizable Value Assets *leded to 6ully secured creditors nvestments================================================= P #,000 Accounts receivable==================================== 1"1,000 +otal============================================================ 'ess 8ote *ayable======================================

##,000======== 2)!,000======== 21,000======== !"0,000======== 11),000======== 7========

Free

d

0#,000 #0,300 P##,300 !nsecured

Value P 210,000========

Liabilities & Equit Claim /ully secured creditors 8otes *ayable=========================================== === P210,000

Liabilities

Unsecured creditor it *riority Accrued aes============================================ P ",200 Accrued *ro*erty tax=================================== #,#00 +otal============================================================ P 13,!00

300,000======== 3#,000========

Unsecured creditor Account *ayable========================================== Accrued ex*enses======================================== &a*ital stocF $etained earnins============================================

P1,!3,000

+otal================================================================

#0,000========

P#0,000 #,300 

P##,300

Chapter 7

130 P(#!)'" 7 . 5

a

!

+otal 6air value o6 assets (estimated *roceeds)==================== ====== 'ess/ully and *artially secured creditors claim 8otes *ayable, interest (secured by receivable and inventory)=================================================================== 125,000 231,000 onds *ayable (secured by land M buildin)==================== Available to unsecured creditors=============================================== 'essUnsecured creditors it *riority P ,500 >a(es *ayable================================================================== 1,000 +axes *ayable=============================================================== ====

P"1,000

35#,000 115,000

23,500

Amount available to unsecured creditors==================================

P 1,500

Unsecured *ortion o6 notes *ayable and interests (P15P125) Accounts *ayable======================================================================

P "0,000 5,000

P1#5,000

+otal claims o6 unsecured creditors===========================================

P1,500 7777777 . 55=5% P1#5,000 c

$istribution o! "%()))*

Creditors Accounts *ayable >aes *ayable +axes *ayable

Amount P 5,000==== ,500===== 1,000=====

"ercent Realized 55=5% 100% 100%

+otal "ament P 52,#"! ,500 1,000

8otes *ayable M interests

125,000===== "0,000 231,000=====

onds *ayable M interests

100% 55=5% 100%

+otal estimated *ayment===================================== ===

125,000 3!,!15 231,000

P"0,3


131

P(#!)'" 7 . 6 1

E'(;(''% C#"a% S&a&'"'%& # Aa*( $%' 3, 28

A,ailable !or Unsecured

Estimated

Book Values P#0,000

!0,000 10,000 100,000 120,000 100,000

Realizable

ASSE+S Pled4ed it% fully secured creditors: 'and and buildin===================================== 'ess @ortae *ayable (includin accrued interest) /ree *ssets &as ========================================================= Accounts receivable 7 net========================= nventories================================================ @acinery 7 net======================================== Eoodill===================================================

Values

+otal 6ree assets=========================================================== 'ess liabilities it *riority======================== ================ et free assets============================================================== ;stimated de6iciency (4ueeze 6iure)=========================

Creditors

P30,000 (330,000)

P 10,000

P ! 0,000 12#,000 !,000 0,000  0

330,000

30,000 10,000

200,000 130,000 P330,000

P1,000,000 L-AB-L-+-ES A.$ S+/C01/L$ERS' E2U-+3

Unsecured

Secured & "riorit Claims Liabilies "it# priority

.on4 5riorit

Liabilities

P120,000 20,000

>aes *ayable========================================== Pro*erty taxes *ayable==============================

300,000 30,000

+otal========================================================= /ully secured creditors @ortae *ayable===================================== nterest on mortae *ayable====================

220,000 100,000 10,000

+otal========================================================= nsecured creditors Accounts *ayable========================================================= 8ote *ayableunsecured=============================================== nterest *ayableunsecured===========================================

P120,000 20,000 P10,000

300,000 30,000 P330,000

7toc%olders9 E:uity 00,000 &a*ital stocF============================================= (200,000) $etained earnins (de6icit)===========================================

P220,000 100,000 10,000

 P330,000

P1,000,000 2=

4ettlement *er *eso o6 unsecured creditors is P=#250 (P200,000-P320,000)= 8o *ayment is made 6or te P10,000 unsecured interest claim= 132  Cha5ter  P(#!)'" 7 . 7 1

E%&(*' #% &($&''< !##= 28 @arc 1 &as======================================================= P!,000 Accounts receivable 7 net======================= 1#,000 nventories============================================== "2,000 'and======================================================= 0,000 uildins 7 net===================================== 200,000 ntanible assets===================================== 52,000 Accounts *ayable======================================== 8ote *ayable=============================================== aes *ayable============================================ @ortae *ayable======================================= ;state euity=============================================== +o record custod o! 0imerald Cor5oration =

@arc 1 to 31&as======================================================= 15,200 !00 ;state euity================================================ Accounts receivablenet============================== +o record collection o! recei,ables and reco#nize loss6 &as======================================================= ;state euity=========================================== nventories================================================== +o record sale o! in,entories at a loss6

P100,000 !0,000 2,000 #,000 1#0,000 0,000

1#,000

3!,!00 33,200 "2,000

&as===================================================== 1!0,000 ;state euity=========================================== #0,000 'and============================================================ uildin(snet============================================== +o record sale o! land and buildin#s at a loss6 ;state euity=========================================== 5ntan(ible assets========================================== +o 7rite o!! intan#ible assets6

52,000

;state euity=================================================== Administrative ex*enses *ayable=======================

1#,00

0,000 200,000

52,000

1#,00

+o accrue trustee e85enses6


133

2 >*%a%c*a) S&a&'"'%& ?*"'(a)d C#(#(a&*#% *% T($&''* a)a%c' S''& Ma(c 31, 28

Assets &as =========================================================================================

P22,000

P100,000 !0,000 2,000 #,000 1#0,000 1#,00

+otal liabilities========================================================================== 'ess% ;state de6icit====================================================================

P3#,00 122,00

+otal liabilities net o6 de6icit=====================================================

P22,000

Liabilities and $e!icit Accounts *ayable= ==================================================================== 8ote *ayableunsecured============================================================ $evenue received in advance==================================================== >a(es *ayable========================================================================== @ort(a(e *ayable= ==================================================================== Administrative ex*ense *ayablene========================================

?*"'(a)d C#(#(a&*#% *% T($&''* S&a&'"'%& # Ca R'c'*& a%d D*!$('"'%& Ma(c 1 &# 31, 28

&as balance, @arc 1, 200!==================================================== Add &as recei*ts &ollections o6 receivables================================== $ 1%,200

P !,000

4ale o6 inventories================================================= 3!,!00 4ale o6 land and buildins=================================== 1!0,000

22,000 707

+otal========================================================================================= 'ess &as disbursements========================================================= &as balance, @arc 31, 200!==================================================

23,000

P22,000

?*"'(a)d C#(#(a&*#% *% T($&''* S&a&'"'%& # Ca%;' *% E&a&' E$*& Ma(c 1 &# 31, 28

P 0,000

;state euity, @arc 1============================================================== 'ess'oss on uncollectible receivables========================= P !00 'oss on sale o6 inventories==================================== 33,200 'oss on sale o6 land and buildins========================= #0,000 'oss on rite o66 o6 intanibles============================= 52,000 Administrative ex*enses===================================== 1#,00 ;state de6icit, @arc 31============================================================

1#2,00

P122,00

134

Chapter 7

3 E%&(*' #% &($&''< !##=:

200! A*ril @ortae *ayable==================================== ======= 1#0,000 &as===================================================================== +o record 5ament o! secured creditors !rom 5roceeds !rom sale o! Land and buildin#s6 Administrative ex*enses *ayablene============== 1#,00 2,000 aes *ayable==================================================== &as===================================================================== +o record 5ament o! 5riorit liabilities = Accounts *ayable============================================== 32,000 8ote *ayableunsecured==================================== 25,#00 &as===================================================================== +o record 5ament o! "69: 5er 5eso to unsecured creditors ;a,ailable Cash o! "<(=)) di,ided b unsecured claims o! ">)()))?6 Accounts *ayable============================================== #!,000 8ote *ayableunsecured==================================== 5,00 ;state euity======================================================== +o 7rite4o!! remainin# liabilities and close trustee's records6

1#0,000

2,00

5",#00

122,00

CHAPTER 7 - Corporation in Financial Difficulty - Liquidation

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