PROBLEM A
1. How much is the net free assets?
c. 1,808,000
2. How much is the estimated deficiency to unsecured creditors?
a. (452,000)
3. What is the estimated net gain/ (loss) on realization of assets?
a. (1,212,000)
4. How much is the estimated payment to partially secured creditors?
d. 4,880,000
5. What is the estimated recovery percentage for unsecured without priority liabilities?
b. 80%
6. What is the estimated recovery percentage for partially secured liabilities?
d. 93.85%
Solutions:
Free Assets
Unsecured
Not pledge:
W/o priority:
660,000
Cash & cash equivalents
1,584,000 Accounts payable
Inventory
804,000 Unsecured portion:
1,600,000
Free portion:
Bank loan payable
Furniture
40,000
Total free asset
2,428,000
Less: unsecured w/ priority
1. Liquidation expense
80,000
2. Salary payable
480,000
3. Taxes payable
60,000
Total unsecured w/ priority
620,000
NET FREE ASSETS
1,808,000 TOTAL UNSECURED
2,260,000
Estimated deficiency to unsecured creditors: (452,000)
Estimated recovery %: 80%
Estimated gain/(loss) on asset realization:
Estimated net
Recorded amount
realizable amount
Receivables, net
3,696,000
3,600,000
Inventory
924,000
804,000
Prepaid expenses
252,000
0
Equipment, net
2,800,000
2,376,000
Furniture
800,000
720,000
Goodwill
240,000
0
Est. net loss
Estimated payment to partially secured liabilities:
Bank loan payable
Less: Receivable
Unsecured portion
Est. payment
Est. recovery percentage
5,200,000
(3,600,000)
1,600,000
x 80%
3,600,000 + 1,280,000
4,880,000
93.85%
Est.
(96,000)
(120,000)
(252,000)
(424,000)
(80,000)
(240,000)
(1,212,000)
PROBLEM B
7. Assume that the assets are converted into cash at the estimated fair value and the business is
liquidated, how much is the estimated deficiency to unsecured creditors?
b. 406,250
Solution:
Free assets
Free portion (578,125-406,250)
Total free assets
Less: liabilities w/ priority
Net free assets
Less: unsecured liability
Less: unsecured portion
Estimated deficiency to unsecured creditors
500,000
171,875
671,875
(109,375)
562,500
(843,750)
(125,000)
406,250
PROBLEM C
8. Compute the expected recovery percentage for unsecured without priority creditors.
a. 98.33%
Free assets
350,000
Free portion
196,875
Total free asset
546,875
Less: liabilities w/ priority
(30,625)
Net free assets
516,250
Less: unsecured liability
(490,000)
Less: unsecured portion
(35,000)
Estimated deficiency to unsecured creditors
8,750
Expected recovery %
98.33%
PROBLEM D
9. If the recovery percentage is 35 percent, how much would be the assets pledged to fully
secured liabilities?
c. 560,000
10. How much would be the assets pledged to partially secured liabilities?
d. 400,000
Solution:
Net free assets
Add: unsecured w/ priority
Total free assets
Less: asset not pledge (inventory)
Free portion
Add: payments to fully secured
Assets pledge to fully
280,000
48,000
328,000
(40,000)
288,000
(272,000)
560,000
Estimated payment to all creditors
Fully secured creditors
Partially secured creditors
Unsecured w/ priority
Unsecured w/o priority
272,000
540,000
48,000
140,000
1,000,000
Estimated payment to all creditors
Asset pledge to fully
Free assets not pledge
Asset pledge to partially
1,000,000
(560,000)
(40,000)
400,000
PROBLEM E
11. How much is the net free assets?
a. 3,485,000
12. How much is the estimated deficiency to unsecured creditors?
b. 1,591,000
13. What is the estimated net gain/ (loss) on realization of assets?
a. (3,300,000)
14. How much is the estimated payment to partially secured creditors?
b. 865,403
15. What is the estimated recovery percentage for unsecured without priority liabilities?
c. 68.66%
16. What is the estimated recovery percentage for partially secured liabilities?
b. 98.68%
1,200,000
2,610,000
2,400,000
Estimated realizable
amount
900,000
1,950,000
1,800,000
30,000
240,000
1,080,000
1,500,000
0
270,000
840,000
0
Recorded amount
Notes receivable
Accounts receivable
Merchandise
inventory
Prepaid insurance
Furniture & fixtures
Delivery equipment
Goodwill
Est. net loss
Free assets
Not pledge:
Cash
Notes receivable
Accounts receivable
Furniture & fixtures
Free portion:
Merchandise inventory
321,000
900,000
1,950,000
270,000
588,000
Unsecured
w/o priority
Notes payable
Accrued interest
Accounts payable
Unsecured portion:
Notes payable
Est.
(300,000)
(660,000)
(600,000)
(30,000)
30,000
(240,000)
(1,500,000)
(3,300,000)
950,000
9,000
4,080,000
37,000
Total free asset
Less: unsecured w/ priority
1. Liquidation expense
2. Salary expense
3. Taxes payable
Total unsecured w/ priority
NET FREE ASSETS
4,029,000
(400,000)
(24,000)
(120,000)
(544,000)
3,485,000 TOTAL UNSECURED
Estimated payment to partially secured liabilities:
Notes payable + interest
Delivery equipment
Unsecured portion
Est. payment to partially secured
Est. recovery % (865,404/877,000)
5,076,000
877,000
840,000
37,000
x 68.66
25,404.2
840,000
865.404.2
98.68%
PROBLEM F
17. How much was the net gain or loss on the realization and liquidation in July?
b. 68,175
18. How much was the Estate Deficit (Equity account) as of the end of the month?
a. 6,825
19. How much was the ending balance of cash?
a. 36,325
Solution:
Asset to be realized:
Beginning balance
Asset acquired:
Accounts receivable
Interest receivable
Liabilities acquired:
Notes payable
Mortgage payable
Interest payable
Liabilities not liquidated
Ending balance
Supplementary charges
Interest expense
Admin expense
Total debt
Net loss: 68,175
Cash Beginning
Asset realized:
429,000 Accounts receivable
Equipment
Asset not realized:
10,500 Ending balance
1,500
Liabilities to be liquidated
65,000 Beginning balance
175,000
16,000
Liabilities assumed
119,500 Interest payable
Supplementary credits
16,000 Sales
13,800 Sales
Interest income
846,300 Total credit
5,500
30,625
225,000
90,000
359,500
16,000
45,000
10,500
1,500
778,125
Accounts receivable
Equipment
Merchandise inventory
Notes payable
Mortgage payable
Interest payable
Admin expense
Ending cash
30,625
225,000
45,000
(65,000)
(175,000)
(16,000)
(13,800)
36,325
Estate equity beginning
Net loss on estate equity
Estate Deficit
75,000
(68,175)
6,825
PROBLEM G
20. The net gain (loss) on realization and liquidation sn:
b. (55,050)
Solution:
Assets to be realized
485,300 Assets realized
Asset required
123,200 Assets not realized
Liabilities liquidated
179,000 Liabilities to be liquidated
Liabilities not liquidated
75,000 Increase in liability
Supplementary charges
Supplementary credit
67,750 (52,500 +
15,250)
Total debit
Net loss:
930,250 Total credit
55,050
348,200
182,800
238,000
16,000
90,200 (13,500 +
12,000 +36,600 +
28,100)
875,200
PROBLEM H
21. How much is the ending balance of cash?
a. 22,360
Solution:
Asset to be realized
123,250 Asset realized
Assets acquired
38,400 Asset not realized
Liabilities liquidated
53,320 Liabilities
to
be
realized
Liabilities not liquidated
36,800 Increase in liability
Supplementary charges
13,870 Supplementary
credit
Total debit
265,640 Total credit
Net loss:
8,590
Liabilities + SHE = 36,800 +82,000 + 29,600 - 8,590 = 139,810
Asset - Non-Cash Assets = 139,810 - 117,450 = 22,360
33,600
117,450
86,200
12,820
6,980
257,050