CORPORATE LIQUIDATION
Problem 1:Statement of Affairs
END Corporation is undergoing liquidation. Relevant information as of January 1, 20X1 is shown below:
ASSETS CA RV LIABILITIES CA RV
Cash 200,000 200,000 Accounts payable 700,000 700,000
A/R 500,000 450,000 Salaries payable 800,000 800,000
Equipment - net 600,000 150,000 Notes payable 500,000 500,000
Land 1,000,000 1,300,000 Loan payable 750,000 750,000
Total Liabilities 2,750,000 2,750,000
EQUITY
Share capital 1,000,000
Deficit (1,450,000)
TOTAL ASSETS 2,300,000 2,100,000 TOTAL LIAB. & EQUITY 2,300,000
Additional information:
Administrative expenses of P180,000 are expected to be incurred during the liquidation process.
The equipment is pledged as collateral security for the note payable.
The land is pledged as collateral security for the loan payable.
Required:
1. Classify the assets and liabilities and compute for the amounts of
2. Compute for the estimated deficiency.
3. Compute for the estimated recovery percentage of unsecured creditors without priority.
4. Mr. A, an unsecured non-priority creditor, has a P500,000 claim. How can Mr. A expect to collect from
XX Corporation?
5. Prepare the statement of affairs.
Book Estimated Realizable Available for
Assets
Values Values Unsecured Creditors
Pledged with fully secured creditors:
Land
Less: Loan payable
Pledged with partially secured creditors:
Equipment - net
Free Assets:
Cash
Accounts receivable
Total free assets
Less: Liabilities with priority (see A)
Net free assets
Estimated deficiency (SQUEEZE)
Unsecured
Book Secured and Priority
Liabilities and Stockholders' Equity Nonpriority
Values Claims
Liabilities
Liabilities with priority:
Salaries payable
Administrative expenses
Total
Fully secured creditors:
Loan payable
Partially secured creditors:
Notes payable
Less: Equipment - net
Unsecured creditors:
Accounts payable
Stockholders' equity
Share capital -
Deficit -
CORPORATE LIQUIDATION
Problem 2:Statement of Realizations and Liquidation
END Corporation is undergoing liquidation. Relevant information as of January 1, 20X1 is shown below:
ASSETS CA LIABILITIES CA
Cash 200,000 Accounts payable 700,000
A/R 500,000 Salaries payable 800,000
Equipment - net 600,000 Notes payable 500,000
Land 1,000,000 Loan payable 750,000
Total Liabilities 2,750,000
EQUITY
Share capital 1,000,000
Deficit (1,450,000)
TOTAL ASSETS 2,300,000 TOTAL LIAB. & EQUITY 2,300,000
Additional information:
Information on January 1, 20X1:
Interest of P30,000 is expected to be paid on the loan.
Liquidation costs of P180,000 are expected to be incurred.
Information on transactions for the year ended Dec. 31, 20X1:
P280,000 were collected on P400,000 accounts receivable.
The equipment was sold for P150,000, net of P40,000 disposal costs. The net proceeds were used to fully
settle the note payable. The creditor canceled the balance.
The land was sold for P1,500,000. Disposal costs of P100,000 were incurred on the sale. The net proceeds
were used to fully settle the loan payable, including the interest.
Half of the accounts payable and one-fourth of the salaries payable were settled.
Liquidation costs of P240,000 were paid. Additional P120,000 are expected to be incurred in 20X2.
Required:
1. Prepare statement of realization and liquidationi.
2. Compute for ending balance of cash.
3. Compute for the ending balance of the estate deficit account and make a reconciliation for the
computed cash balance.
Statement of Realization and Liquidation
ASSETS
Assets to be realized: Assets realized:
Accounts receivable Accounts receivable
Equipment - net Equipment - net
Land Land
Total Total
Assets acquired: Assets not realized:
Accounts receivable
LIABILITIES
Liabilities liquidated Liabilities to be liquidated
Accounts payable Accounts payable
Salaries payable Salaries payable
Note payable Note payable
Loan payable Loan payable
Interest payable Total
Total
Liabilities not liquidated: Liabilities assumed:
Accounts payable Interest payable
Salaries payable
Total
SUPPLEMENTARY ITEMS
Supplementry expenses: Supplementary income:
Liquidation costs
Net loss for the year
4,770,000 4,770,000
CORPORATE LIQUIDATION
Problem 3:
Data taken from the statement of affairs of MM Corporation:
Assets pledged for fully secured liabilities (current fair value, P75,000) 90,000
Assets pledged for partially secured liabilities (current fair value, P52,000) 74,000
Free assets (current fair value, P40,000) 70,000
Unsecured liabilities with priority 7,000
Fully secured liabilities 30,000
Partially secured liabilities 60,000
Unsecured liabilities without priority 112,000
1. The amount that will be paid to creditors with priority is:
a. 7,000 b. 6,000 c. 7,500 d. 6,200
2. The amount to be paid to fully secured creditors is
a. 30,000 b. 32,000 c. 20,000 d. 35,000
3. The amount to be paid to partially secured creditors is
a. 52,700 b. 57,200 c. 56,200 d. 57,000
4. The amount to be paid to unsecured creditors is
a. 78,200 b. 70,800 c. 72,000 d. 72,800
Problem 4:
A review of the assets and liabilities of the No Good Company, in bankruptcy on June 31, 2023, discloses the
following:
A mortgage payable of P350,000 is secured by land and buildings valued at P560,000.
Notes payable of P175,000 are secured by equipment valued at P140,000.
Assets other than those referred to, have an estimated value of P157,500.
Liabilities other than those referred to, total P420,000, which included claims with priority of P52,500.
What is the estimated deficiency to unsecured creditors?
a. 87,500 b. 35,000 c. 402,500 d. 315,000
Problem 5:
A review of the assets and liabilities of the No Good Company, in bankruptcy on June 31, 2023, discloses the
following:
Assets to be realized 330,000 Liabilities assumed 180,000
Assets acquired 360,000 Liabilities liquidated 360,000
Assets realized 420,000 Liabilities not liquidated 450,000
Assets not realized 150,000 Supplementary credits 510,000
Liabilities to be liquidated 540,000 Supplementary charges 468,000
The ending balances of capital stock and the retained earnings are P300,000 and P120,000, respectively.
1. What is the net income (loss) for the period?
a. (168,000) b. 168,000 c. (210,000) d. 210,000
2. What is the ending balance of cash?
a. 720,000 b. 560,000 c. 700,000 d. 460,000