PROBLEM SOLVING
1. The following balances were ascertained in NOMONEY Corp. which is experiencing insolvency:
Cash
8,000
Notes receivable
120,000
Inventories
80,000
Prepaid expense
10,000
Equipment, net
150,000
Total
368,000
Accounts payable
Accrued expenses
Salaries payable
Mortgage payable
Ordinary shares
Deficit
Total
80,000
30,000
15,000
155,000
100,000
(12,000)
368,000
Additional information:
 Estimated net realizable value of the notes receivable was P105,000 and was pledged to
the mortgage payable.
 80% of the book value of the inventories can be sold at P45,000 and was pledged to 60%
of the accounts payable.
 The remaining book value of the inventories have an estimated fair value of P20,000.
 80% of the remaining unpaid accounts payable were secured by the equipment having an
estimated fair value of P60,000.
 Prepaid expenses have no estimated fair value
 Liquidation and administration expenses were estimated in the amount of P8,000.
 Income tax payable had been accrued in the amount of P2,000 (the accountant recorded
it using the accrued expense account.
 Interest on the notes receivable and mortgage payable have not been accrued in the
amount of P10,000 and P15,000 respectively.
1. How much is the estimated deficiency? Ans: (55,000)
2. How much are the net free assets? Ans: 37,400
3. How much is the estimated payment to the mortgage payable?
Ans: 137,264
4. How much is the estimated recovery percentage to the partially secured
accounts payable?
Ans: 96.28%
2. Cagayan Company is experiencing financial problems which resulted to ultimate bankruptcy. The
statement of financial position of the entity before liquidation is presented below:
Cash
100,000
Inventory
300,000
Land
200,00
Income tax payable
200,000
Salaries payable
300,000
Note payable
800,000
Mortgage payable
100,000
Accounts payable
400,000
Contributed capital
500,000
Deficit
(1,700,000)
 The note payable is secured by the inventory with the net realizable value of P250,000.
 The mortgage payable is secured by the land with fair value of P120,000.
1. What is the amount received by the holder of the note payable at the end of corporate
liquidation?
Ans: 250,000
2. What is the amount received by the holder of the mortgage payable at the end of the
corporate liquidation?
Ans: 100,000
3. What is the amount received by the employees at the end of corporate liquidation
concerning their salaries?
Ans: 120,000
3. Liberty Corporation provided the following balances in July 1, 2020:
Cash
5,500
Accounts receivable
35,000
Inventories
60,000
Notes receivable
78,000
Equipment
256,000
Total
434,500
Accounts payable
Wages payable
Tax payable
Note payable
Mortgage payable
Share capital
Deficit
Total
59,500
25,000
35,000
65,000
175,000
120,000
(45,000)
434,500
In the statement of realization and liquidation the following data are ascertained for the month
of July:
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
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


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The note payable and mortgage payable together with their respective interests are paid.
Only 7/8 is collected from the existing accounts receivable at the beginning of the month.
Half of the inventories were sold for P45,000.
Only P68,500 of the notes receivable is collected.
Equipment is sold for P225,000.
Administrative expenses of P13,800 are paid.
Additional credit sales amounting to P10,500 are made for the remaining inventories.
Interests not accrued for the month are note receivable P1,500, note payable P5,500 and
mortgage payable P10,500.
All existing noncash assets at the beginning of the month are sold or collected during the
month.
1. How much is the profit or loss in the statement of realization and liquidation?
Ans: Net Loss of (77,675)
2. How much is the estate equity at July 31,2020?
Ans: (2,675)
4. Finish Corporation has been undergoing liquidation since January 1. Its condensed statement of
realization and liquidation for the month of June is presented below:
Interest received in cash on investment
10,500
Purchases on account
105,000
Liabilities liquidated
2,450,000
Assets realized
2,100,000
Payment of expense of trustee
525,000
Liabilities to be liquidated, June 1
4,574,500
Sales on Account
50,000
Assets to be realized, July 1
2,940,000
Liabilities not liquidated, June 30
2,229,500
Sales for cash
1,750,000
Assets not realized, May 31
6,650,000
What is the net gain(loss) on realization and liquidation?
Ans: Net Loss of (479,500)