Advanced Financial Accounting
CORPORATE LIQUIDATION
Problem Solving
1. The following balances were ascertained in NOMONEY Corp. which is experiencing insolvency:
Cash
Notes receivable
Inventories
Prepaid expense
Equipment, net
8,000
120,000
80,000
10,000
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:
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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 expense has 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?
2. How much are the net free assets?
3. How much is the estimated payment to the mortgage payable?
4. How much is the estimated recovery percentage to the partially secured accounts
payable?
5. How much is the estimated payment to all liabilities?
6. How much is the estimated gain or loss on realization?
7. How much is the estimated estate deficit?
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
Inventory
Land
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100,000
300,000
200,000
Income tax payable
Salaries payable
Note payable
Mortgage payable
Accounts payable
Contributed capital
Deficit
200,000
300,000
800,000
100,000
400,000
500,000
(1,700,000)
The note payable is secured by the inventory with net realizable value of P250,000.
The mortgage payable is secured by the land with fair value of P120,000.
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1. What is the amount received by the holder of the note payable at the end of corporate
liquidation?
2. What is the amount received by the holder of the mortgage payable at the end of
corporate liquidation?
3. What is the amount received by the employees at the end of corporate liquidation
concerning their salaries?
3. Bancarote Inc. is under court-supervised liquidation due to its insolvency. The court appointed
liquidator has provided the following data after conducting an inventory of Bancarote’s assets and
liabilities:
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The total assets which are not used as security for any liability amounted to P5M while the total
unsecured liabilities amounted to P20M.
The total assets which are used as collateral or security for corporate obligations amounted to
P10M. ¾ of these assets secure a mortgage payable with book value of P2M including interest
while the remainder secure a note payable with book value of P3.5M including interest.
Salaries payable amounted to 2M while taxes due government amounted to P1M.
1. What is the estimated recovery percentage of unsecured creditors without priority?
2. What is the amount received by partially secured creditors?
4. Liberty Corporation provided the following balances in July 1, 2020:
Cash
Accounts receivable
Inventories
Notes receivable
Equipment
Total
5,500
35,000
60,000
78,000
256,000
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Accounts payable
Wages payable
Tax payable
Note payable
Mortgage payable
Share capital
Deficit
59,500
25,000
35,000
65,000
175,000
120,000
(45,000)
434,500
Total
434,500
In the statement of realization and liquidation the following data are ascertained for the month of
July:
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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?
2. How much is the estate equity at July 31, 2020?
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