Corporate Liquidation- Antonio J. Dayag
1. Philippine National Bank holds a P500,000 note secured by a building owned by
Luigi Software, which was filed for bankruptcy. If the property has a book value of
P600,000 and a fair market value of P450,000, what is the best way to describe
the notes held by PNB? The bank has
a. a secured claim of P500,000
b. an unsecured claim of P500,000
c. a secured claim of P450,000 and an unsecured claim of P50,000
d. a secured claim of P50,000 and an unsecured claim of P50,000
2. X and Y Inc. owes the Xylo Corporation P60,000 on account, which is secured by
accounts receivable with a book value of P50,000. The unsecured portion is
considered a claim under the bankruptcy law. X and Y has files for bankruptcy.
Its statement of affairs lists the accounts receivable securing the Xylo account
with an estimated realizable value of P45,000. If the dividend to general
unsecured creditors is 80%, how much can Xylo expect to receive?
a. P60,000
b. 58,000
c. 57,000
d. 48,000
3. P Corporation is a parent, having purchased 60% of S Company’s common stock
at par value for P600,000. S Company is in financial difficulty. The parent granted
an unsecured loan of P200,000 to the subsidiary. An accounting statement of
affairs for S Company shows a dividend of 30%. P Corporation can expect to
receive on the loan of approximately:
a. P120,000
b.
60,000
c.
36,000
d.
0
4. P Corporation is a parent, having purchased 60% of S Company’s common stock
at par value for P600,000. S Company is in financial difficulty. The parent granted
an unsecured loan of P200,000 to the subsidiary. An accounting statement of
affairs for S Company shows a dividend of 30%. P Corporation can expect to
receive payment for its investment in S Company of approximately:
a. P600,000
b. 180,000
c.
108,000
d.
0
5. Kent Inc. has forced into bankruptcy and has begun to liquidate. Unsecured
claims will be paid at the rate of 40 cents on the peso. Apex Co. holds a non-
interest bearing note receivable from Kent in the amount of P100,000,
collateralized by a machinery with a liquidation value of P25,000. The total
amount to be realized by Apex on this note receivable is:
a. P25,000
b. 40,000
c. 55,000
d. 65,000
6. Seco Corp. was forced into bankruptcy and is in the process of liquidating assets
and paying claims. Unsecured claims will be paid at the rate of forty cents on the peso.
Hale holds a P30,000 noninterest-bearing note receivables from Seco collateralized by
an asset with a book value of P35,000 and a liquidation value of P5,000. The amount to
be realized by Hale on this note is?
a.
b.
P5,000
P12,000
c.
d.
P15,000
P17,000
7. Blueprint, Inc. signed a note payable to its bank for P10,000. Accrued interest on the
note on February 28, 2015 amounts to P250. The note is secured by inventory with a
book value of P12,000. The inventory is sold for P8,000 and unsecured creditors
receive 30 percent of their claims. The bank should receive the following amount in
settlement of the note and interest:
a.
b.
P10,250
10,000
c.
d.
P8,675
8,000
8. The trust for Ardolio, Inc. prepare as a statement of affairs which shows that
unsecured creditors whose claims total P60,000 may expect to receive approximately
P36,000 if assets are sold for the benefit of creditors.




a.
b.
c.
d.
Michael is an employee who is owed P750.
Meldcan holds a note for P1,000 on which interest of P50 is accrued;
nothing has been pledged on the note.
Compboy holds a note of P6,000 on which interest of P300 is accured:
securities with a book value of P6,500 and a present market value of
P5,000 are pledged on the note.
Serpor holds a note for P2,500 on which interest of P150 is accrued
property with a book value of P2,000 and a present market value of
P3,000 is pledged on the note
Michael
P
0
90
350
750
Meldcan
P
0
0
1,050
630
Compboy
P
0
6,300
5,780
5,780
Serpor
P
0
2,390
0
2,650
9. Erap Co. filed a voluntary bankruptcy petition on August 15, 2015, and the statement
of affairs reflects the following amounts:
Book
value
Estimated
current
value
Assets:
Assets pledged with fully secured creditors
P300,000
P370,000
Creditors ………………………………..
180,000
120,000
Free assets ……………………………………..
420,000
320,000
P 900,000
P810,000
Assets pledged with partially secured
Liabilities:
Liabilities with priority …………………………
Fully secured creditors ……………………….
Partially secured creditors …………………..
Unsecured creditors ………………………….
P70,000
260,000
200,000
540,000
Assume that the assets are converted to cash at the estimated current values and the
business is liquidated. What amount of cash will be available to pay unsecured
nonpriority claims?
a.
b.
P240,000
280,000
c.
d.
P320,000
360,000
10. Zamora and Co., Inc. purchased a Cadillac automobile with little cash down and
signed a note, secured by the Cadillac, for 48 easy monthly payments. When the
company files for bankruptcy, the balance due on the Cadillac amount to P6,000,000.
The car has a book value of P8,000,000 and a net realizable value of P4,000,000. The
unsecured creditors of Zamora and Co. can expect to receive 50 percent of their claims.
In the liquidation, the bank that holds the note on the Cadillac should receive:
a.
b.
P6,000,000
5,000,000
c.
d.
P4,000,000
3,000,000
11. The following data are provided by the Troubled Company:
Assets at book value ……………………………………….. P150,000
Assets at net realizable value …………………………….. 105,000
Liabilities at book value:
Fully secured mortgage ……………………………. 60,000
Unsecured accounts and notes payable ……… 70,000
Unrecorded liabilities:
Interest on bank notes ………………………………
500
Estimated cost of administering estate ………….
6,000
The court has appointed a trustee to liquidate the company.
The journal entry made by the trustee to record the assets and liabilities should include
an estate deficit of:
a.
b.
P31,500
31,000
c.
d.
P25,500
25,000
12. Using the same information in Number 11, the statement of affairs prepared by the
trustee at this time should include an estimated deficiency to unsecured creditors of:
a.
b.
P45,000
39,000
c.
d.
P31,500
25,000
13. Nah Lugi Corporation is in bankruptcy and is being liquidated by a court appointed
trustee. The financial report that follow was prepared by the trustee just before the final
cash distribution:
Assets:
Cash ………………………………………………….. P100,000
Approve Claims:
Mortgage payable (secured by property
That was sold for P50,000) ………………… P80,000
Accounts payable, unsecured …………………..50,000
Administrative expenses payable, unsecured .. 8,000
Salaries payable, unsecured ……………………..
2,000
P140,000
The administrative expenses are for trustees and other costs of administering the debtor
corporation’s estate.
How should the P100,000 be distributed to the following creditors?
a.
b.
c.
d.
Unsecured
Creditors
With Priority
P
10,000
5,000
10,000
Partially
Secured
Creditors
P80,000
80,000
65,000
65,000
Unsecured
Creditors
Without Priority
P20,000
10,000
25,000
25,000
14. On December 18,2011, the statement of affairs of Downside Company, which is in
bankruptcy liquidation, included the following:
Assets pledged for fully secured liabilities ……………….. P100,000
Assets pledged for partially secured liabilities ………….. 40,000
Free Assets ……………………………………………………… 120,000
Fully secured liabilities ………………………………………..
80,000
Partially secured liabilities ……………………………………
50,000
Unsecured liabilities with priority ……………………………
60,000
Unsecured liabilities without priority ……………………….
90,000
Compute the estimated amount to be paid to:
a.
b.
c.
d.
Fully
Secured
Liabilities
P80,000
64,000
80,000
80,000
Unsecured
Liabilities
w/ Priority
P60,000
60,000
48,000
60,000
Partially
Secured
Liabilities
P50,000
48,000
60,000
48,000
Unsecured
Liabilities
without Priority
P70,000
88,000
72,000
72,000
15. The following data were taken from the statement of affairs for Liquo
Company:
Assets pledged for fully secured liabilities
(Fair Value, P75,000) ………………………………
P90,000
Assets pledged to partially secured liabilities
(Fair Value, P52,000) ………………………………
74,000
Free assets (Fair Value, P40,000) ………………………..
70,000
Unsecured liabilities with priority ………………………..
7,000
Fully secured liabilities …………………………………….
30,000
Partially secured liabilities ………………………………..
60,000
Unsecured liabilities without priority …………………… 112,000
Compute the: (1) total estimated deficiency to unsecured creditors, and (2) the expected
recovery per peso of unsecured claims.
a.
b.
(1) 42,000;
(1) 3,000;
(2) P.65
(2) P.98
c.
d.
(1) P
0;
(1) P42,000;
(2) P1.00
(2) P.70
16. Katherine, a CPA, has prepared a statement of Affairs. Assets which there are no
claims or liens are expected to produce Php. 70000, which must be the allocated to
unsecured claims of all classes totaling Php. 105,000. The following are some of the
claims outstanding:





Accounting Fees for Katherine – Php. 1500.00
An unrecorded note of Php. 1000, on which P60 of interest has accrued, held by
Angie.
A note for Php. 3000 secured by Php. 4000 receivables, estimated to be 60%
collectible held by Joy.
A Php. 1500 note, on which Php 30 of interest has accrued, held by Joyots.
Property with a book value of Php. 1000 and a market value of Php. 1800 is
pledged to guarantee payment of principal interest.
Unpaid Income taxes of Php. 3500
Compute the estimated payment to partially secured creditors:
a.
b.
c.
d.
1060
1950
2490
2790
17. The Creditors of the Rogerod Corporation agreed to a LIQUIDATION based on the
statement of affairs, suggested that unsecured creditors, without priority would receive
approximately P 0.60 on the peso. The unsecured creditors are interested in
determining whether the preliminary estimate still seems appropriate. The trustee was
originally assigned non cash assets of Php. 1,480,00 and creditors claims as follows:
Fully Secured, P670000; partially secured, P400000; unsecured with priority, P200000,
and unsecured without priority, P320000. Assets with a book value of P45000 and
unsecured liabilities (w/o priority) of P35000 were subsequently discovered. Assets with
a total book value of P740000 were sold for P715000 net. Fully secured liabilities of
410,000 and partially secured liabilities of P280000 were paid. Remaining liquidation
expenses were estimated to be P30000.
Assume the remaining non cash assets have an estimated net realizable value as
follows:



Assets traceable to fully secured creditors – P240000
Assets traceable to partially secured creditors – P 110000
Remaining Assets - P382000
Determining the revised estimate of the dividend receive by unsecured creditors without
priority:
a.
b.
c.
d.
100%
66.17%
45.97%
Can’t be determined
18. Palubog Co. is insolvent and its statement of affairs shows the following:






Gains on realization of assets – 1,440,000
Losses on realization of Assets – 2,000,000
Additional Assets – 1,280,000
Additional Liabilities – 960,000
Capital Stock – 2,000,000
Deficit – 1,200,000
The pro rate payment on peso to stockholders is:
a.
b.
c.
d.
0.30
0.43
0.57
0.70
19. Zero Na Corp has been undergoing liquidation since Jan 1. As of March 31, its
condensed statement of realization and liquidation is presented below:
Assets:
To be realized – 1,375,000
Acquired – 750,000
Realized – 1,200,000
Not Realized – 1,375,000
Liabilities:
Liquidated – 1,875,000
Not Liquidated – 1,700,000
To be liquidated – 2,250,000
Assumed – 1,625,000
Revenues and Expenses
Supplementary charges – 3,125,000
Supplementary credits – 2,800,00
The net gain (loss) for the three month period ending March 31 is:
a.
b.
c.
d.
250000
(325000)
425000
750000
20. Using the same information on No. 19, compute the ending cash balance of cash
account assuming that common stock and deficits are P1,500,000 and P500,000,
respectively.
a. 425,000
b. 575,000
c. 1,325,000
d. 1,375,000