Chapter 6
Problem I
1. Statement of Affairs - Formal
MINER COMPANY
Statement of Affairs
May 31, 2012
Book Value
P 50,000
1,200
119,000
13,200
6,000
61,000
60,000
1,100
8,500
Assets
Assets Pledged with Fully Secured Creditors:
Notes Receivable
P39,800
Accrued Interest Rec.
1,000
P 40,800
Notes Payable
Accrued Interest Pay.
40,000
800
Building
Note Payable
Accrued Interest Pay.
20,000
800
40,800
75,000
20,800
Free Assets
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Goodwill
Total Net Realizable Value
Liabilities having Priority – Wages
Taxes
Net Free Assets
6,000
50,000
30,000
400
0
140,600
6,000
2,400
Estimated Deficiency to Unsecured Creditors
P 6,000
2,400
60,000
1,600
10,000
P 54,200
Assets Pledged with Partially Secured Creditors:
Equipment
4,200
Note Payable
10,000
Equities
Liabilities Having Priority:
Accrued Wages
Taxes Payable
Fully Secured Creditors:
Notes Payable
Accrued Interest Payable
Partially Secured Creditors:
Note Payable
Equipment
8,400
132,200
53,600
P 185,800
P 320,000
Book
Value
Realizable
Value
Unsecured
P 6,000
2,400
P 8,400
60,000
1,600
61,600
10,000
4,200
P 5,800
170,000
10,000
110,000
( 50,000)
P 320,000
Unsecured Creditors:
Accounts Payable
Notes Payable
170,000
10,000
Stockholders’ Equity
Common Stock
Retained Earnings (Deficit)
P 185,800
2. Deficiency Statement to determine estimated deficiency to unsecured creditors:
Deficiency Account
May 31, 2012
Estimated Losses:
Estimated Gains:
Accounts Receivable
P 11,000
Common Stock
P 110,000
Notes Receivable
10,400
Retained Earnings
(50,000)
Inventory
30,000
Estimated Deficiency to
Buildings
44,000
Unsecured Creditors
53,600
Equipment
9,000
Prepaid Insurance
700
Goodwill
8,500
P113,600
P 113,600
Estimated final dividend rate to unsecured creditors is: P132,200/P185,800 = 71.15%
Problem II
1. Formal
Down Dog Corporation
Statement of Affairs
June 30, 2014
Book Value
Assets
Pledged with partially secured creditors
P165,000 Equipment-net
Less: Note payable and accrued interest
Unsecured amount (See below)
Free Assets
3,000 Cash
72,000 Accounts receivable-net
60,000 Inventories
Total net realizable value
Less: Priority liabilities – wages payable
Total available for unsecured creditors
______
Estimated deficiency to unsecured creditors
P300,000
Realizable Value
P87,000
(96,000)
(9,000)
3,000
48,000
72,000
123,000
(45,000)
78,000
30,000
P108,000
Deficiency
Account
(Loss/Gain)
(78,000)
P
0
(24,000)
12,000
______
(90,000)
Unsecured
Equities
Book Value
Priority liabilities
P 45,000 Wages payable (assumed under
P4,650 per employee)
Partially secured creditors
96,000 Note payable and accrued interest
Less: Equipment pledged as security
Liabilities
P 45,000
P 96,000
(87,000)
P 9,000
Unsecured creditors
72,000 Accounts payable
27,000 Rent payable
Stockholders’ equity
180,000 Capital stock
(120,000)
(120,000)
P300,000
Estimated Deficiency
72,000
27,000
180,000
______
Retained earnings (deficit)
P108,000
2. Estimated payments per dollar for unsecured creditors
Cash available
Distribution to partially secured and unsecured priority creditors:
Note payable and interest
Administrative expenses
Wages payable
Available to unsecured nonpriority creditors
P 60,000
P(30,000)
P210,000
P87,000
24,000
45,000
Note payable and interest (unsecured portion)
Accounts payable
Rent payable
Unsecured nonpriority claims
(156,000)
P 54,000
P 9,000
72,000
27,000
P108,000
(P54,000 / P108,000 = P0.50 per peso)
Expected recovery for each class of claims
Partially secured
Note payable and interest
Secured portion
Unsecured portion (P9,000 × 0.50)
P87,000
4,500
P91,500
Unsecured priority
Administrative expenses
Wages payable
P24,000
45,000
69,000
Unsecured nonpriority
Accounts payable (P72,000 × 0.50
Rent payable (P27,000 × 0.50)
Total payments
P36,000
13,500
49,500
P210,000
Problem III
Realizable value of all assets (P635,000 + P300,000 + P340,000)
Allocated to:
Fully secured creditors
Partially secured creditors
Unsecured creditors with priority
Remainder available to general unsecured creditors
Payment rate to general unsecured creditors
(Including balance due to partially secured creditors)
P559,000 / (P1,165,000 + (P400,000 - P300,000))
P1,275,000
(316,000)
(300,000)
(100,000)
P559,000
44.2%
Realizable value of assets:
Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
Free assets
Total realizable value
P635,000
300,000
340,000
P1,275,000
Amounts to be paid to:
Fully secured creditors
Partially secured creditors [P300,000 + (0.442 × P100,000)]
Unsecured creditors with priority
General unsecured creditors (0.442 × P1,165,000)
Total
P316,000
344,200
100,000
514,800*
P1,275,000
*Rounded P130
Problem IV
Free Assets:
Current Assets .................................................................................
Buildings and Equipment ..............................................................
Total ........................................................................................
P 35,000
110,000
P145,000
Liabilities with Priority:
Administrative Expenses ................................................................
Salaries Payable (only P3,000 per employee) ...........................
Income Taxes .................................................................................
Total ........................................................................................
P 20,000
6,000
8,000
P 34,000
Free Assets After Payment of Liabilities with Priority
(P145,000 – P34,000) ......................................................................
P111,000
Unsecured Liabilities
Notes Payable (in excess of value of security) .........................
Accounts Payable ..........................................................................
Bonds Payable ................................................................................
Total ........................................................................................
P 30,000
85,000
70,000
P185,000
Percentage of Unsecured Liabilities To Be Paid: P111,000/P185,000 = 60 %
Payment On Notes Payable:
Value of Security (land) .................................................................
P 90,000
60% of Remaining P30,000 ............................................................
18,000
Total Collected by holders ............................................................
P108,000
Problem V
Free Assets:
Cash
........................................................................................
Receivables (30 percent collectible) ..........................................
Inventory ........................................................................................
Land (value in excess of secured note:
P120,000 – P110,000) .................................................................
Total ........................................................................................
P30,000
15,000
39,000
10,000
P94,000
Less: Liabilities with priority
Salary payable (below maximum) ........................................
Free assets available ................................................................
(10,000)
P84,000
Unsecured Liabilities:
Accounts payable ..........................................................................
Bonds payable (less secured interest in
building: P300,000 – P180,000) ................................................
Unsecured liabilities ..................................................................
P90,000
120,000
P210,000
Percentage of unsecured liabilities to be paid: P84,000/P210,000 = 40%
Amounts to be paid for:
Salary payable (liability with priority to be paid
in full) ........................................................................................
Accounts payable (unsecured—will collect 40%
of debts of P90,000) ..................................................................
Note payable (fully secured by land—will collect
entire balance) ........................................................................
Bonds payable (partially secured—will collect
P180,000 from building and 40 percent of the
remaining P120,000) .................................................................
P10,000
P36,000
P110,000
P228,000
Problem VI
Class of Creditors
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities with priority
Unsecured liabilities without priority
Total Creditor’s
Claims
183,600
54,600
30,810
182,500
Problem VII
1. Total estimated proceeds
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory)
Mortgage payable and interest (from
proceeds of land and building)
Total available to unsecured claimants.
Total Amounts
Expected to
be Recovered
183,600
51,720
30,810
116,800
% of Total
Claims
Expected to
be Recovered
100.0
94.7
100.0
64.0
P910,000
P150,000
320,000
470,000
P440,000
Less distributions to unsecured claims
with priority:
Wages payable
Taxes payable
Amount available for unsecured claims
2.
3.
P 10,000
20,000
Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000)
Accounts payable
Total claims ofunsecured creditors
Dividend to Unsecured Creditors
P410,000 ÷ P640,000 = 64.1%
30,000
P410,000
P380,000
260,000
P640,000
Unsecured portion of notes payable and
Interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
Total Received
P380,000
64.1%
P243,580
150,000
P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%
Problem VIII
1.
WILBUR CORPORATION
STATEMENT OF AFFAIRS
DECEMBER 31, 20x4
Assets
Estimated
Current
Values
Book Value
P 40,000
50,000
110,000
(1) Assets pledged with fully secured
creditors:
Accounts receivable (net)
Less: 10% note payable and
interest
Land
Plant and equipment (net)
Less: Mortgages payable and
interest
20,000
35,000
(2) Assets pledged with partially
secured creditors:
Marketable securities
Less: 10% note payable and
interest
Inventory
Less: Accounts payable
Estimated
Amount
Available to
Unsecured
Claims
Estimated
Gain
(Loss) on
Realization
P 40,000
38,500
P 1,500
P 65,000
100,000
P165,000
(157,500)
P 16,000
P 15,000
(10,000)
7,500
(4,000)
(20,800)
P 32,000
(60,000)
(3,000)
4,000
35,000
55,000
6,000
140,000
48,000
(3) Free assets:
Cash
Accounts receivable (net)
Inventory
Prepaid insurance
Plant and equipment (net)
Franchises
P 4,000
35,000
50,000
1,000
60,000
15,000
4,000
35,000
50,000
1,000
60,000
15,000
Estimated amount available
Less: Creditors with priority
Net available to unsecured creditors
Estimated deficiency
P 174,000
(43,000)
P 131,000
45,000
Total unsecured debt
P 176,000
P 543,000
(5,000)
(5,000)
(80,000)
(33,000)
(P 125,000)
2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43%
Problem IX
Assets to be realized
Old Receivebles, net
Marketable Securities
Old Inventory
Depreciable Assets, net
Smith Company
Statement of Realization and Liquidation
Assets
Assets Realized
P 50,000
20,000
72,000
120,000
Assets Acquired
New Receivables
Old Receivbles
New Receivbles
Marketable Securities
Sales of Inventory
Assets Not Realized
100,000
Old Receivables, net
New Receivables, net
Depreciable Assets
Supplementary Charges
Supplementary Items
Supplementary Credits
Old Current Payables
P 31,000
Liabilities Liquidated
Old Current Payables
Net Loss
22,000
35,000
96,000
P 7,000
Liabilities
Liabilities to be Liquidated
P 31,000
Liabilities Not Liquidated
Old Current Payables
P 28,000
65,000
15,000
100,000
Old Current Payables
P 65,000
Liabilities Incurred
P 34,000
P433,000
________
P 433,000
Problem X
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20x5
Assets
Cash
Non-Cash
P 4,000
P720,000
Assets
Beginning balances assigned 5/1/x5
Cash Receipts:
Collection of Accounts Receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts pay.
Partial payment of bank loan
Ending balance
Assets
Beginning balances assigned
5/1/X5Receipts:
Cash
Collection of Accounts
Receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts
pay
Partial payment of bank loan
Ending balance
Fully
Secured
P240,000
Partially
Secured
P270,000
60,000
170,000
20,000
70,000
(70,000)
(200,000)
(340,000)
(100,000)
(60,000)
(170,000)
(70,000)
P24,000
P10,000
Liabilities
Unsecured
With
Without
Priority
Priority
P94,000
P0
(10,000)
(30,000)
(80,000)
(30,000)
(240,000)
(60,000)
(180,000)
________
(90,000) ________
P
0 P
0 P34,000
P
0
Owner's
Equity
P120,000
10,000
20,000
P30,000
________
P (30,000)
Multiple Choice Problems
1. d – since there is parent and subsidiary relationship, any intercompany accounts are
eliminated from consolidated point of view.
2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000
– (P4,500 + P10,000) = P76,500 estimated amount available for unsecured, non-priority
creditors; P76,500  P90,000 = 0.85]
3. c – it is a partially secured liability
4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000
5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000
6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000
7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000
8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000
9. d
10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000)
= P93,000
12. c – P93,000/P121,000 = 77% rounded.
13. a
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 – P300,000) + P600,000 = P700,000
14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000
+ Liq. expenses P40,000 = P165,000.
15. c
Statement of Realization and Liquidation
Assets to be Realized………….
Assets Acquired………………..
Liabilities Liquidated………….
Liabilities Not Liquidated…….
Supplementary charges/
debits………………………
P 1,375,000
750,000
1,875,000
1,700,000
Assets Realized…………………..P 1,200,000
Assets Not Realized…………… 1,375,000
Liabilities to be Liquidated…. 2,250,000
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
16. No requirement
17. c
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
18. P440,000
Total Free Assets:
Fully secured:
Land and building: P650,000 – (P300,000 + P20,000) = P 330,000
Free assets:
Cash
10,000
Equipment
100,000
Or,
Total estimated proceeds
Less asset proceeds claimed by secured
creditors:
P
440,000
P910,000
Notes payable and interest (from
proceeds of receivables and inventory)
Mortgage payable and interest (from
proceeds of land and building)
Total available to unsecured claimants/total free
19. P410,000
Total available to unsecured claimants/total free
Less distributions to unsecured claims
with priority:
Wages payable
Taxes payable
Amount available for unsecured
claims/net free assets
P150,000
320,000
470,000
P440,000
P440,000
P 10,000
20,000
30,000
P410,000
20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), or
Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000)
Accounts payable
Total claims of unsecured creditors
P380,000
260,000
P640,000
21. 64.1%
Dividend to unsecured creditors
P410,000 ÷ P640,000 = 64.1%
22. P320,000 = P300,000 + P20,000
23. P393,580
Unsecured portion of notes payable and
interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
Total Received
x
P380,000
64.1%
P243,580
150,000
P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%
24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to roundingoff)
27. P230,000
Net free assets (No. 19)
P410,000
Less: Unsecured creditors without priority (No. 20)
640,000
P230,000
28. P340,000 = P910,000 – P1,250,000
29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)
30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is
the formal presentation of statement of affairs
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
10,000
Other Accrued Liabilities
185,375
Totals
40,975
Owner Equity
226,350
31.
32.
33.
34.
35.
36.
37.
Estimated
Secured
Amount
Estimated Amt
Avail for
Unsecured
Creditors
Estimated
Gain or
(Loss)on
Liquidation
22,200
4,625
(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
_______
108,975
3,775
P56,900 – refer to No. 30 for computation
P72,625 – refer to No. for computation
Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation
P80,975 – refer to No. 30 for computation
P45,160 = P28,000 + (P22,000 x 78%)
P3,775
P39,487.50 = 78% x (P40,625 + P10,000)
40,625
10,000
72,625
38. P169,397.50
No. 34……………..P 80.975
No. 35…………….. 45,160
No. 36……………..
3,775
No. 37…………….. 39,487.50
P169,397.50 (discrepancy around P250 plus due to rounding-off)
39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity
40. P56,700 – refer to No. 30 or P169,650 – P226,350
41. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)
42. P22,475
Liabilities
Unsecured
Assets
Fully
Partial
With Without
Cash Noncash Secured Secured
Priority
Priority
6/1/x5 Balances:
1,850
224,500
80,975
50,000
3,775
50,625
Cash
Receipts:
Securities Sale
16,000
N/R Collected
15,000
Equipment
7,000
Sale
Inventory Sale
22,000
Cash Disbursements:
Bank Loan
(10,375)
Part Pyt-A/P
(29,000)
6/30 Balance
22,475
Owners'
Equity
40,975
(5,800)
(15,000)
(43,000)
10,200
0
(36,000)
(41,000)
(19,000)
---------119,700
(10,375)
--------70,600
(50,000)
0
------3,775
21,000
71,625
---------(3,825)
43. P119,700 – refer to No. 42
44. P70,600 – refer to No. 42
45. None – refer to No. 42
46. P3,775 – refer to No. 42
47. P71,625 – refer to No. 42
48. (P3,825) deficit – refer to No. 42
49. P150,900
Book
Value
57,000
174,000
6,000
900
90,000
Estimated
Net
Realizable
Assets
Value
Assets pledged with fully secured creditors:
Accounts receivable (net)
45,000
Land, plant and equipment (net)
150,000
Total
195,000
Free assets:
Notes receivable
6,000
Accrued interest receivable
900
Inventories (90,000 x 60%)
54,000
Estimated
Amount
Available for
Unsecured
Creditor
Estimated
Gain or
(Loss) on
Liquidation
12,600
77,400
(12,000)
(24,000)
6,000
900
54,000
0
0
(36,000)
Estimated
amount
available for
unsecured creditors with and
without priority
Less unsecured creditors with priority
Estimated amounts for unsecured
creditors without priority:
Net realizable amount available
Deficiency
327,900
Book
Value
3,600
69,000
2,400
30,000
24,900
0
150,900
(26,900)
124,000
26,000
Totals
255,900
150,000
Estimated
Secured
Amount
Liabilities and Owners' Equity
Fully secured creditors:
Accrued interest
Note payable
Accrued interest
Note payable
Total
Unsecured creditors with priority:
Wages payable
Administration fees – accountant’s
fee
Unsecured creditors without priority:
Accrued interest
Cash overdraft
Notes payable
Accounts payable
Totals
Owners' equity--see Note A
0
18,000
6,000
126,000
279,900
48,000
327,900
Note A: Includes the effect of the P2,000 professional fee.
(72,000)
Estimated Unsecured
Amount
With Priority
Without
Priority
3,600
69,000
2,400
30,000
105,000
24,900
2,000
-------105,000
-------26,900
50. P124,000 – refer to No. 49
51. P150,000–
52. 82.67% = P124,000/P150,000
53. P105,000
54. None
55. P26,900
56. P124,005 = P150,000 x 82.67%
57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)
58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,000
59. P72,000 – refer to No. 49
60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses
THEORIES
1.
debtor
2. P5,000
3.
inability to pay debts as they mature
4.
a.
administrative costs
b.
certain postfiling “gap” claims in involuntary filings
c.
wages, salaries, and commissions
d.
employee benefit plans
0
18,000
6,000
126,000
150,000
5.
6.
7.
8.
9.
10.
11.
12.
13.
44.
45.
46.
47.
48.
e.
deposits by individuals
f.
taxes
infrequent
two-thirds, more than one-half
fraudulent, preferential
realization and liquidation
False
False
False
True
False
a
c
c
a
b
14.
15.
16.
17.
18.
False
True
True
True
True
c
50. d
51. a
52. d
53. b
49.
19.
False
False
20.
21.
22.
23.
54.
55.
56.
57.
58.
c
a
a
d
c
d
b
a
24.
25.
26.
27.
28.
c
a
d
c
e
59. a
60. c
29.
30.
31.
32.
33.
b
b
b
a
c
34.
35.
36.
37.
38.
b
d
b
c
a
39.
40.
41.
42.
43.
b
c
b
a
c