On June 1, 20x5 the books of Drem er Corporation show assets with books values and realizable values as follows: Book value
Cash Accounts Receivable-net Note Receivable Inventory Investment in Calandir Stock Land and Building-net Equipment-net TOTALS
Realizable value
1,850 21,200 15,000 41,000 5,800 98,500 43,000 226,350
1,850 17,000 15,000 20,000 15,000 92,800 8,000 169,650
Dremer’s books show the following liabilities
Accounts Payable (50,000 secured by inventory and equipm ent) Wages Payable Other Accrued Liabilities Accrued Interest on Notes Payable Accrued Interest on Mortgage Payable Notes Payable (secured by Calandir Stock) Mortgage Payable (secured by Land and Building) TOTAL 1. 2. 3. 4.
BOOK VALUE 90,625 3,775 10,000 375 600 10,000 70,000 185,375
56,9 00 Compute the estimated amount available to unsecured creditors or total free assets. 56,900 Compute the estimated amount available available to unsecured creditors without priority or total net free assets. 72,625 Compute the dividend to unsecured creditors without priority. .78 Compute the estimated amount to be paid to partially secured creditors. 45,160
5.
Sparkman co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman was was paying forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of 150,000 on land that was sold 110,000. The total amount of payment Bailey should have received is calculated to be: a. 110,000 d. 134,000 b. 44,000 e. 60,000 c. 126,000
6.
Target corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid thirty cents on the peso. Arrow holds a note receivable from Target for 90,000 collaterized by an asset with a book value of 60,000 and a liquidation value of 30,000. The amount ot be realized by Arrow on the note is: a. 30,000 b. 48,000 c. 60,000 d. 90,000
Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed of realization and liquidation is presented below: ASSETS Assets to be realized Assets acquired
1,375,000 750,000
Assets realized Assets not realized LIABILITIES Liabilities liquidated Liabilities not liquidated Liabilities to be liquidated Liabilities assumed REVENUES AND EXPENSES Supplementary debits Supplementary credits
1,200,000 1,375,000 1,875,000 1,700,000 2,250,000 1,625,000 3,125,000 2,800,000
7.
The net gain (loss) for the three month period ending March 31 is: a. 250,000 b. (325,000) c. 425,000 d. 750,000
8.
Compute the ending cash balance of cash account assuming that common stock and deficits are 1,500,000 and 500,000 respectively. a. 425,000 b. 575,000 c. 1,325,000 d. 1,375,000
9.
Palubog Co. is insolvent and its statement of affairs shows the following information: Estimated gains on realization of assets Estimated losses on realization of assets Additional assets Additional liabilities Capital stock Deficit
1,440,000 2,000,000 1,280,000 960,000 2,000,000 1,200,000
The pro rate payment on the peso to stockholders (estimated amount to be recovered by stockholders) is: a. .30 b. .43 c. .57 d. .70 10. Dobby corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of 30 cents on the peso. Carson holds a note receivable from Dobby for 75,000 collaterized by an asset with a book value of 50,000 and liquidation value of 25,000. The amount to be realized on the note is: a. 25,000 b. 40,000 c. 50,000 d. 75,000
Solutions: Dremer corp.
Estimated Net Realizable Value
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 Other Accrued Liabilities 10,000 185,375 Totals 40,975 Owner Equity 226,350
Estimated Secured Amount
Estimated Amt Avail for Unsecured Creditors
22,200 4,625
Estimated Gain or (Loss)on Liquidation
(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
40,625 10,000
_______ 108,975
3,775
72,625
1. 2. 3. 4. 5. 6. 7.
P56,900 P72,625
P56,900/P72,625 = P.78 P45,160 = P28,000 + (P22,000 x 78%) [ P110,000 + (P150,000 – P110,000) x 40%] = P126,000 P30,000 + [.30 x (P90,000 – P30,000)] = P48,000 Statement of Realization and Liquidation
Assets to be Realized…………. Assets Acquired……………….. Liabilities Liquidated…………. Liabilities Not Liquidated……. Supplementary charges/ debits………………………
P 1,375,000 Assets Realized…………………..P 1,200,000 750,000 Assets Not Realized…………… 1,375,000 1,875,000 Liabilities to be Liquidated…. 2,250,000 1,700,000 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
8. Total Liabilities (refer to Liabilities not liquidated –No. 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, ending……………………………………………………………… P1,325,000
9.
Estimated losses on realization of assets 2,000,000. Less: Estimated gains on realization of assets 1,440,000 Additional assets 1,280,000 Estimated net (gain) or loss in assets realization (720,000) Add: Additional liabilities 960,000 Estimated net (gain) or loss 240,000 Less: Stockholder’s Equity Capital stock 2,000,000 Deficit 1,200,000 800,000 Estimated amount to be recovered by stockholders 560,000
Estimated amount to be recovered by stockholders Divided by: Stockholder’s Equity Rate of Return:
10. C 50,000 because it is a partially secured liability.
560,000 800,000 .70
