Answer Key Corporate Liquidation
1. B
Total claims 100,000
Less: Collateral asset 40,000
Unsecured portion 60,000
x Expected recovery percentage 60%
Total 36,000
Add: Collateral asset 40,000
Total recovery 76,000
2. B
BV of assets 1,200,000
BV of liabilities 1,280,000
Estate deficit (80,000)
3. B/C
Req. 1
Assets at book value 525,000
Less: Liabilities at book value 455,000
Estate Equity 70,000
Req. 2
Assets at estimated realizable value 367,500
Less: Fully secured mortgage 210,000
Total Free Assets 157,500
Less: Unsecured with priority 21,000
Net Free Assets 136,500
Less: Unsecured without priority (245,000 + 1,750) 246,750
Estimated Deficiency (110,250)
4. A/B
Req. 1
Total Estimated Realizable Value 2,025,000
Less: Unsecured with priority (175,000)
Fully secured liabilities (650,000)
Est. Realizable value of assets pledged to partially secured (300,000)
Net Free Assets 900,000
Req. 2
Unsecured portion of partially secured liability (450K - 300K) 150,000
Expected recovery percentage 60%
Recovery amount of unsecured portion 90,000
Add: Est. realizable Value of pledged assets 300,000
Total Recovery 390,000
Divide by Total partially secured liability 450,000
Estimated Recovery percentage of partially secured liability 87%
5. D/A
Req. 1
Total Estimated Realizable Value of Asset 738,000
Less: Fully Secured Liability 210,000
Asset pledged to partially secured 150,000
With priority 126,000
Net Free Assets 252,000
Divide By total Unsecured without priority (600K + 240) 840,000
Expected recovery percentage 30%
Unsecured portion of AP 240,000
x Expected recovery % 30%
Total 72,000
Add: Asset pledged to partially secured 150,000
Total payment to partially secured 222,000
Req. 2
Excess of assets pledged to fully secured (348 - 210) 138,000
Other assets 240,000
Total free assets 378,000
6. B/C
Req. 1
Shareholders' equity 198,000
Loss on realization of assets (247,500)
Estimated administrative costs that have not
been entered in the accounting records (24,750)
Estimated Deficiency (74,250)
Add: Unsecured Liabilities without priority 495,000
Net Free Assets 420,750
Expected Recovery Percentage (420,750/495,000) 85%
Req. 2
Net Free Assets 420,750
Add: with priority 55,000
Total free assets 475,750
7. B/C/A/D
Req. 1
Free Total unsecured w/o
Assets Priority
Notes payable (122,500 - 95,000) 27,500 16,000 AP (70,000 - 54,000)
Other liab excluding
Prepaid expense - 22,500 salary/taxes
Other assets 17,000
Total Free assets 44,500
Less: with priority 12,500
Net Free Assets 32,000 38,500 Total
Req. 2
BV ERV
Inventories 80,000 54,000 (26,000)
Prepaid expense 18,000 - (18,000)
Other Assets 32,000 17,000 (15,000)
Total estimated loss 250,000 (59,000)
The gain on equipment is not included because the question is total estimated loss not estimated net
loss.
Req. 3
Unsecured portion of AP 16,000
x Expected recovery % 83%
Total 13,299
Add: Asset pledged to partially secured 54,000
Total payment to partially secured 67,299
Req. 4
Notes payable is considered fully secured liability. Therefore, it will received 100% claims.
8. D/B
Req. 1
Total unsecured w /o
Free Assets Priority
Fully (IP 300K - LP 100K) 200,000 100,000 P S (NP 200K - MI 100K)
Other assets 600,000 1,900,000 Other Liability
Free assets 800,000
Less: w ith priority (100K + 40K + 60K) 200,000
Net Free Assets 600,000 2,000,000
(600,000 NFA / 2,000,000 total unsecured
w ithout priority) 30%
Req. 2
Unsecured creditors without priority 1,900,000
x Expected recovery % 30%
Unsecured creditors without 570,000
9. B/C/A
Req. 1
Partially secured 3,000,000
x recovery % of partially secured 92%
Total amount of recovery 2,760,000
Less pledged assets 2,250,000
Amount paid to unsecured portion 510,000
Divide by unsecured portion 750,000
Expected recovery % of unsecured liability 68%
Loan Payable 3,000,000
Less: Pledged Equipment 2,250,000
Unsecured portion 750,000
Add: notes payable 750,000
Total unsecured without priority 1,500,000
x expected recovery % of unsecured liability 68%
Net Free Assets 1,020,000
Add: with priority (400K + 2.25M + 1.5M) 4,150,000
Total Free assets 5,170,000
Req. 2
Total Free assets 5,170,000
Less: Cash 4,050,000
Free asset portion of building ERV 1,120,000
Add: Mortgage payable 3,750,000
Total ERV of building 4,870,000
Less: BV of Building 7,200,000
Estimated loss on realization (2,330,000)
Req. 3
Fully secured - Mortgage 3,750,000
Partially secured - loan payable 2,760,000
With priority 4,150,000
Without priority (750,000 x 68%) 510,000
Total 11,170,000
10. C/A
Req. 1
Total unsecured
Free Assets w/o Priority
PS (LP 68,750 - Machine
Fully (102,500 - NP92,000 - 3875) 6,625 1,550 67,200)
Equipment 123,750 175,750 LP balance
Other assets 82,275 138,500 Other liabilities
Cash 14,875
Free assets 227,525
Less: with priority
Salary 21,750
Taxes 14,500
Trustee fee 10,625
Net Free Assets 180,650 315,800
Total Assets 600,000
Goodwill (27,500)
Prepaid expense (9,500)
Furniture (102,500 divide by 2/3) (153,750)
Machinery (96,000)
Equipment (161,250)
Cash (14,875)
Other assets 137,125
x 60%
Estimated realizable value of other assets 82,275
Total Liabilities 475,000
Notes payable (92,000)
Loans payable (244,500)
Other liabilities 138,500
Req. 2
Unsecured portion of partially secured liab. 1,550
x Expected recovery % (180,650/315,800) 57%
Recovery 886.66
Add: pledged asset to partially secured 67,200
Total estimated payment 68,087
11. B/A
Req. 1
Gain (Loss)
ATR 380,000 338,000 AR
AA 25,000 18,000 ANR
LL 268,800 350,000 LTL
LNL ? 109,200 28,000 LA
S charges 86,350 59,700 S credits
869,350 793,700
75,650 Net Loss
869,350 869,350
Req. 2
Cash 10,500
Assets to be realized 380,000
Total Assets before liquidation 390,500
Less: Liabilities to be Liquidated 350,000
Estate Equity before liquidation 40,500
Net Loss (75,650)
Estate Deficit, end of September (35,150)
12. C/D
Req. 1
Gain (Loss)
ATR 278,000 235,000 AR
AA 36,500 13,500 ANR
LL ? 295,000 310,000 LTL
LNL 30,800 15,800 LA
S charges 28,750 100,800 S credits
6,050 Net Gain
Estate Equity Beginning (18,500)
Estate Equity Ending (12,450)
Net Gain 6,050
Req. 2
Estate Equity beginning (18,500)
Add: Liabilities to be liquidated 310,000
Total Assets before liquidation 291,500
Less: Assets to be realized (278,000)
Cash beginning balance 13,500
13. A/A
Req. 1
Total estimated realizable value 5,200,000
Less: Unsecured with priority 560,000
Fully secured (bonds) 1,200,000
Land pledge to notes payable 1,200,000
Net Free Assets 2,240,000
Unsecured without pledged assets 2,400,000
Excess of partially secured 400,000
Total unsecured liabilities without priority 2,800,000
Unsecured portion of AP 400,000
x Expected recovery % 80%
Total 320,000
Add: Asset pledged to partially secured 1,200,000
Total payment to partially secured 1,520,000
Req. 2 A the estimated realizable value of the asset pledged. The bonds payable is a fully secured
liabilities.
14. D
15. B
Total Free Asses 280,000 Other Unsecured w/o priority
Less: Unscored with priority: Unrecorded note plus interest
Accounting fees 6,000 Unsecured claims (420,000 - 6K - 14K) 400,000
Unpaid tax 14,000
Net Free Assets 260,000 400,000
Partially Secured
Notes Payable 12,000
Less: AR 9,600 9,600
Unsecured portion 2,400
x Expected recovery % 260K/400K 65.% 1,560.00
Total Recovery 11,160
16. C
Estimated gains on realization of assets 3,600,000
Estimated losses on realization of assets (5,000,000)
Additional Assets 3,200,000
Additional Liabilities (2,400,000)
Ordinary share 5,000,000
Deficit (3,000,000)
Total Estimated Amount to be recovered 1,400,000
Total SHE 2,000,000
% payment to be recovered by shareholders 70%
17. B
18. C
19. C
20. D
21. C
22. B
23. B
24. C
25. C
26. C
27. B
28. D
29. A
30. B
31. C
32. D
33. D
34. A
35. D
36. D
STRAIGHT PROBLEMS
Problem 1:
W ilson Corp
Statement of Affairs
Estimated Available for
Book Realizable Unsecured
Values Assets Value Creditors
Assets Pledged to Fully Secured Creditors
800,000 Furniture 720,000
Less: Bonds Payable 680,000 40,000
2,800,000 Equipment 2,376,000
Less: Notes payable 2,376,000 -
Assets Pledged to Partially Secured Creditors
3,696,000 Accounts receivable 3,600,000
Free Assets
1,584,000 Cash 1,584,000
924,000 Inventory 804,000
252,000 Prepaid expenses -
240,000 Goodwill - 2,388,000
10,296,000 Total Free Assets 2,428,000
Less: Unsecured Liabilities with Priority 620,000
Net Free Assets 1,808,000
Estimated Deficiency 452,000
Totalo 2,260,000
Secured
and
Book Priority Unsecured Non
Values Liabilities and SHE Claims Priority Claims
Unsecured Liabilities with Priority
- Liquidation expenses 80,000
480,000 Salaries payable 480,000
- Tax payable 60,000
Total 620,000 -
Fully Secured Liabilities
680,000 Bonds payable 680,000
2,376,000 Notes payable 2,376,000
Total 3,056,000
Partially Secured Liabilities
5,200,000 Bank loan payable 5,200,000
Less: Accounts receivable 3,600,000 1,600,000
Unsecured Liabilities without Priority
660,000 Accounts payable 660,000
Shareholders' Equity
960,000 Ordinary shares -
(60,000) Deficit -
10,296,000 Total Unsecured Non Priority Claims 2,260,000
Problem 2:
Amount received by partially secured loan payable 340,000
Less: Fair value of collateral – machinery (300,000)
Recovered amount from the unsecured portion of partially secured 40,000
loans payable
Divided by unsecured portion of partially secured loan payable /100,000
(400,000 – 300,000)
Recovery percentage on unsecured credits 40%
Amount received by holder of accounts payable (P100,000 x 40%) 40,000
Accounts payable 100,000
Add: Unsecured portion of partially secured loan payable (400,000 100,000
– P300,000)
Total unsecured credits including unsecured portion of partially 200,000
secured loans payable
Multiply by recovery percentage of unsecured credits x 40%
Net free assets 80,000
Problem 3:
Req.
1 Books of Trustee
Feb.
1 Cash 24,000
Accounts Receivables 48,000
Inventories 216,000
Land 120,000
Building 600,000
Intangible Assets 156,000
Accounts payable 300,000
Notes payable - unsecured 240,000
Deferred revenue 6,000
Wages payable 18,000
Mortgage payable 480,000
Estate Equity (240,000 - 120,000) 120,000
To record the transfer of assets and liabilities to trustee
a Cash 45,600
Estate Equity 2,400
Accounts Receivable 48,000
To record the collection of accounts receivable and recognition of loss
b Cash 116,400
Estate Equity 99,600
Inventories 216,000
To record the sale of inventories and recognition of loss
c Cash 540,000
Estate Equity 180,000
Land 120,000
Building 600,000
To record the sale of land and building and recognition of loss
d Estate equity 156,000
Intangible assets 156,000
To record the write-off of intangible assets and recognition of loss
e Estate Equity 49,200
Administrative expense payable 49,200
To record the administrative expense payable
Req. 2
Tap Corporation
Statement of Financial Position
February 28, 20x1
Assets
Cash 726,000
Liabilities and Estate Equity
Accounts Payable 300,000
Notes Payable - unsecured 240,000
Deferred Revenue 6,000
Wages Payable 18,000
Mortgage Payable 480,000
Administrative expense payable 49,200
Total Liabilities 1,093,200
Estate Equity (367,200)
726,000
Tap Corporation
Statement of Cash Receipts and Disbursements
February 1 to 28, 20x1
Cash, February 1, 20x1 24,000
Add: Cash Receipts
Collection of Receivables 45,600
Sale of Inventories 116,400
Sale of land and Building 540,000
Total 726,000
Less: Cash Disbursements -
Cash, February 28, 20x1 726,000
Tap Corporation
Statement of Changes in Estate Equity
February 1 to 28, 20x1
Estate Equity, February 1, 20x1 120,000
Less: Loss on uncollectible accounts receivables 2,400
Loss on sale of inventories 99,600
Loss on sale of land and building 180,000
Loss on write off of intangible assets 156,000
Administrative expenses 49,200 487,200
Estate Deficit, February 28, 20x1 (367,200)
Req. 3 Mortgage Payable 480,000
Cash 480,000
To record the payment of mortgage payable (fully secured)
Administrative expense payable 49,200
Deferred revenue 6,000
Wages payable 18,000
Cash 73,200
To record payment of unsecured liability with priority
Accounts payable (172,800 x 300,000/540,000) 96,000
Notes payable - unsecured (172,800 x 240,000/540,000) 76,800
Cash 172,800
To record the payment of unsecured liabilities without priority
Total available cash 726,000
Less: Payment of Mortgage payable 480,000
Payment of unsecured liabilities with priorities 73,200
Remaining cash 172,800
Accounts payable 204,000
Notes payable - unsecured 163,200
Estate Equity 367,200
To write-off the remaining liabilities and close the trustee's books
Problem 4:
Req. 1
Gain (Loss)
ATR 550,000 480,000 AR
AA 300,000 550,000 ANR
LL 750,000 900,000 LTL
LNL 680,000 650,000 LA
S charges 1,250,000 1,120,000 S credits
170,000 Net Gain
Req. 2
Ordinary share ending 600,000
Deficit (200,000)
Total Estate Equity end 400,000
Add: Liabilities not liquidated 680,000
Total Assets end 1,080,000
Less: Assets not realized 550,000
Cash ending balance 530,000
Problem 5:
Req. 1
Gain (Loss)
Total non-cash assets beginning ATR 283,000 121,000 AR (8,000+60,000+36,000+17,000
(4,000+54,000) AA 58,000 156,000 ANR (20,000 +54,000+42,000 + 40,000)
(150,000 +15,000+25,000) LL 190,000 350,000 LTL
(80,000 + 15,000 + 80,000 + 8,000) LNL 183,000 23,000 LA (8,000 + 15,000)
(8000,+15,000+18,000) S charges 41,000 58,000 S credits (4,000 + 54,000)
Net Loss 47,000 Net Gain
Req. 2
Estate Equity beginning (150,000 - 55,500) 94,500
Net loss (47,000)
Estate Equity ending 47,500
Problem 6:
FA UL
Fully Secured (150,000 - 60,000) 90,000
Partially secured (120,000 -104,000) 16,000
Free assets 80,000
Unsecured without 230,000
Unsecured with (14,000)
Total 156,000 246,000
Req. 1 NFA 156,000 - total unsecured without priority 246,000 = (90,000)
Req. 2 NFA 156,000 / total unsecured without priority 246,000 = 63%
Problem 7:
Req. 1
Gain (Loss)
ATR 475,000 275,750 AR (125,000 + 57,500 + 92,500 +750
(25,000 + 750 AA 25,750 210,000 ANR (110,000 + 100,000
(175,000 + LL 175,000 325,000 LTL
(157,500+1,750) LNL 159,250 9,250 LA (7,500 + 1,750)
(7,500 +37,500 + 1,750) S charges 46,750 25,750 S credits (25,000 +750
Net Loss 36,000 Net Gain
Req. 2
Estate Equity beginning (250K - 75K) 175,000
Less Net Loss (36,000)
Estate Equity ending 139,000
Req. 3
NPC Corporation
Income Statement
For the month Ended March 20x1
Book Value Proceeds Gain (loss)
Gains and Losses on Assets Realization
Short Term Investment 75,000 92,500 17,500
Accounts Receivable 65,000 57,500 (7,500)
Inventory 157,500 150,000 (7,500)
Total 2,500
Expenses during liquidation:
Interest expense 1,750
Trustee expense 37,500 (39,250)
Other Revenue
Interest on Marketable Securities 750
Total Net Loss (36,000)