CORPORATE LIQUIDATION
STATEMENT OF AFFAIRS
PROBLEM B. TANG-A Company filed a voluntary
bankruptcy petition on August 15, 2017 and the statements
of affairs reflect the following amounts:
PROBLEM A. The AFAR Corporation, which is undergoing
liquidation, has the following condensed balance sheet as of
December 31, 2017:
P1,584,000
3,696,000
924,000
252,000
2,800,000
800,000
240,000
Salaries payable
Accounts payable
Bonds payable
Bank loan payable
Notes payable
Ordinary shares
Deficit
Total Assets
10,296,000
Total Liabilities and Shareholder’s
Equity
Additional information:
•
•
•
•
1.
2.
3.
4.
5.
6.
Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
Free assets
Total
Liabilities with priority
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities
Total
Liabilities and Shareholder’s Equity
Assets
Cash and cash equivalents
Receivables, net
Inventory
Prepaid expenses
Equipment, net
Furniture
Goodwill
The bonds payable above was secured by the furniture
with realizable amount of P720,000 while the entire
receivable with realizable amount of P3,600,000 has
been the collateral for bank loan payable.
Notes payable was secured by equipment with realizable
amount of P2,376,000.
Inventory could be sold for P804,000.
Liquidation expenses incurred by the trustee amounted
to P80,000 and unrecorded tax payable amounted to
P60,000.
How much is the net free assets?
a. 2,388,000
b. 1,768,000
c. 1,808,000
d. 2,428,000
How much is the estimated deficiency to unsecured
creditors?
a. (452,000)
b. (492,000)
c. (425,000)
d. No deficiency since assets are greater than
liabilities
What is the estimated net gain/ (loss) on realization of
assets?
a. (1,212,000)
b. (720,000)
c. (960,000)
d. 972,000
How much is the estimated payment to partially secured
creditors?
a. 3,600,000
b. 4,160,000
c. 1,280,000
d. 4,880,000
What is the estimated recovery percentage for
unsecured without priority liabilities?
a. 100%
b. 80%
c. 78.23%
d. 93.85%
What is the estimated recovery percentage for partially
secured liabilities?
a. 100%
b. 80%
c. 78.23%
d. 93.85%
P480,000
660,000
680,000
5,200,000
2,376,000
960,000
(60,000)
10,296,000
Book Value
P 156,250
281,250
656,250
P1,093,750
P109,375
406,250
312,500
843,750
P1,671,875
Fair Value
P578,125
187,500
500,000
P1,265,625
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?
a. 575,125
b. 406,250
c. 171,875
d. No deficiency
PROBLEM C. The following data are taken from the
statement of affairs of BA-GAY-AO Company:
Unsecured liabilities without priority
Partially secured liabilities
Fully secured liabilities
Unsecured liabilities with priority
Free assets (fair value P350,000)
Assets pledged to partially secured liabilities
(fair value P227,500)
Assets pledged to fully secured liabilities (fair
value P328,125)
8. Compute the expected recovery
unsecured without priority creditors.
a. 98.33%
b. 97.24%
c. 96.47%
d. 89.32%
490,000
262,500
131,250
30,625
306,250
323,750
393,750
percentage
for
PROBLEM D. ALBIE Corporation is undergoing liquidation.
The trustee of ALBIE Corp. presents the following
information:
•
P280,000 assets are available to unsecured creditors
(excluding those unsecured with priority), P40,000 of
which represents inventories. It was ascertained that
only inventories were not pledged to any liabilities.
• Unpaid liabilities are as follows: administrative expenses,
P14,000; taxes, P24,000; and wages, P10,000.
• Accounts payable and notes payable totaled P400,000.
No assets were pledged on the said liabilities.
• Payment to fully secured creditors and partially secured
creditors amount to P272,000 and P540,000,
respectively.
9. If the recovery percentage is 35 percent, how much
would be the assets pledged to fully secured liabilities?
a. 272,000
b. 552,000
c. 560,000
d. 512,000
10. How much would be the assets pledged to partially
secured liabilities?
CORPORATE LIQUIDATION
a.
b.
c.
d.
540,000
140,000
280,000
400,000
PROBLEM E. FAREX Corporation has been experiencing
financial difficulties for a long time and to avoid future losses,
the company decided to liquidate. The trustee appointed by
the Securities and Exchange Commission gathered the
following information:
Assets
Cash
Notes Receivables
Accounts Receivables, net
Merchandise Inventory
Prepaid Insurance
Furniture and Fixtures, net
Delivery Equipment, net
Goodwill
Total Assets
•
•
•
•
•
•
•
11.
12.
13.
14.
15.
Liabilities and Shareholder’s Equity
P321,000
1,200,000
2,610,000
2,400,000
30,000
240,000
1,080,000
1,500,000
10,296,000
d. 66.66%
16. What is the estimated recovery percentage for partially
secured liabilities?
a. 98.63%
b. 98.68%
c. 97.32%
d. 97.89%
STATEMENT OF REALIZATION AND LIQUIDATION
PROBLEM F. SUGAR Corp. has the following balances on
realization of assets and liquidation of
Salaries and wages payable
Notes payable
Accrued Interest
Accounts Payable
Ordinary Shares
Share Premiums
Deficit
P24,000
July 1, 2017 before
3,000,000
48,000
the company:
Assets
4,080,000
3,000,000 Cash
Accounts
receivable
300,000
(1,071,000) Inventories
Total Liabilities and Shareholder’s
Equity
9,381,000
Only ¾ of the notes receivable and P1,950,000 of the
accounts receivable are expected to be collectible.
The fair value of merchandise inventories is estimated at
75% of book value.
The delivery equipment can be realized at P840,000.
Furniture and fixtures have fair values of P30,000 more
than the book value.
Notes payable of P850,000 with accrued interest of
P27,000 is secured by the delivery equipment.
Merchandise inventories with a book value of
P1,800,000 secure 40% of the notes payable with
related accrued interest of P12,000.
FAREX incurred taxes of P120,000 and liability to trustee
of P400,000.
How much is the net free assets?
a. 3,485,000
b. 3,891,000
c. 3,347,000
d. 4,029,000
How much is the estimated deficiency to unsecured
creditors?
a. 2,135,000
b. 1,591,000
c. 1,561,000
d. No deficiency since total assets are greater than
total liabilities
What is the estimated net gain/ (loss) on realization of
assets?
a. (3,300,000)
b. (1,709,000)
c. 1,709,000
d. (1,770,000)
How much is the estimated payment to partially secured
creditors?
a. 840,000
b. 865,403
c. 602,148
d. 877,000
What is the estimated recovery percentage for
unsecured without priority liabilities?
a. 69.32%
b. 67.23%
c. 68.66%
Liabilities and Shareholder’s Equity
Notes receivable
Equipment
P5,500
35,000
60,000
78,000
256,000
Accounts Payable
Wages payable
Tax payable
Notes payable
Mortgage payable
Capital stock
Deficit
P59,500
25,000
35,000
65,000
175,000
120,000
(45,000)
Total
434,500
Total
434,500
Assets were realized during the month as follows:
•
•
•
Existing beginning balance accounts receivable were
collected for 7/8 only of the recorded amount, the
remaining was worthless.
Half of the inventories were sold for P45,000 cash while
the remaining were sold on credit for P10,500.
The equipment was sold for P225,000 cash.
Additional information:
•
Interests were accrued during the month as follows:
o Notes receivable
P1,500
o Notes payable
5,500
o Mortgage payable
10,500
• Notes payable and mortgage payable, together with
their respective interest, were paid as of the end of
the month. Furthermore, administrative expenses of
P 13,800 were also paid.
17. How much was the net gain or loss on the realization
and liquidation in July?
a. 61,875
b. 68,175
c. 71,450
d. 82,155
18. How much was the Estate Deficit (Equity account) as of
the end of the month?
a. 6,825
b. 7,285
c. 6,528
d. 8,155
19. How much was the ending balance of cash?
a. 36,325
b. 26,235
c. 19,235
d. 32,045
CORPORATE LIQUIDATION
PROBLEM G. BABY Corporation has been undergoing
liquidation since January 1. As of June 30, its condensed
statement of realization and liquidation is presented below:
20. The net gain (loss) on realization and liquidation is:
a. 55,050
b. (55,050)
c. 79,050
d. (79,050)
PROBLEM H. The following data were taken from the
statement of realization and liquidation of HONEY
Corporation for the quarter ended June 30, 2017:
The beginning capital balances of ordinary shares and
retained earnings are P82,000 and P29,600, respectively. A
net loss of P8,590 for the period was incurred.
21. How much is the ending balance of cash?
a. 22,360
b. 103,570
c. 65,370
d. 91,250