Page 1 of 3 | AFAR Pre-recorded Handout 02
CORPORATE LIQUIDATION
MARK ALYSON B. NGINA, CMA, CPA
REO.CPA.ACADEMICS.F2.01.00
CORPORATE LIQUIDATION
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MARK ALYSON B. NGINA, CMA, CPA
Syllabus
2.0 Corporate Liquidation
2.1 Statement of Affairs
2.2 Statement of Deficiency
2.3 Statement of Realization and Liquidation
2.4 Determination of the order of priority of claimants of company assets subject to liquidation
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Insolvency
The financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course
of business or has liabilities that are greater than its or his assets.
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Financial Reports
1. Statement of Affairs
2. Statement of Realization and Liquidation
3. Statement of Receipts and Disbursement
4. Statement of Estate Deficit
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Corporate Liquidation
Liquidation is the termination of business operations or the winding up of the affairs. It is a process by which:
1. Noncash assets are converted to cash (i.e. realization)
2. Liabilities of the business are settled (i.e. liquidation)
3. Any remaining amount is distributed to shareholders
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REVIEW QUESTIONS
1. In which of the following ways can debt be restructured?
I. Assets can be transferred to the creditor.
II. An equity interest can be granted to the creditor.
III. The terms of the debt can be modified.
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
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2. Which of the following credits shall be settled first by the corporate liquidator in the winding up of the affairs of a
dissolved corporation?
a. Book value per share for the common stockholders of the dissolved corporation
b. Liquidation value per share for the preferred stockholders of the dissolved corporation
c. Redemption value of the stocks for the redeemable preferred stockholders of the dissolved corporation
d. Claims of the creditors of the dissolved corporation
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3. The following data are provided by the Troubled Company:
Assets at book value
Assets at net realizable value
Liabilities at book value:
Fully secured mortgage
Unsecured accounts and notes payable
Unrecorded liabilities:
Interest on bank notes
Estimated cost of administering estate
₱3,000,000
2,100,000
1,200,000
1,400,000
10,000
120,000
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Page 2 of 3 | AFAR Pre-recorded Handout 02
MARK ALYSON B. NGINA, CMA, CPA
CORPORATE LIQUIDATION
REO.CPA.ACADEMICS.F2.01.00
The court has appointed a Trustee to liquidate the company.
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The statement of affairs prepared by the trustee at this time should include an estimated deficiency to unsecured
creditors of
a. ₱630,000
b. ₱570,000
c. ₱270,000
d. None of the choices
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Use the following data to answer the next two questions:
Because of inability to pay its debts, the Liit Kita Manufacturing Company has been forced into bankruptcy as of April
30. The statement of financial position on that date shows:
Assets
Liabilities
Cash
₱ 2,700 Accounts payable
₱ 52,500
Accounts receivables
39,350 Note payable - PNB
15,000
Notes receivables
18,500 Notes payable - suppliers
51,250
Inventories
87,850 Accrued wages
1,850
Prepaid expenses
950 Accrued taxes
4,650
Land and buildings
61,250 Mortgage bonds payable
90,000
Equipment
48,800 Common stock – ₱100 par
75,000
- Retained earnings
( 30,850)
₱ 259,400
₱ 259,400
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Additional information:
a. Account receivable of ₱16,110 and notes receivable of ₱12,500 are expected to be collectible. The good notes
are pledged to Philippine National Bank.
b. Inventories are expected to bring in ₱45,100 when sold under bankruptcy conditions.
c. Land and buildings have an appraised value of ₱95,000. They serve as security on the bonds.
d. The current value of the equipment, net of disposal cost is ₱9,000.
e. Estimated legal and accounting fees for the liquidation are ₱1,000.
f. Unrecorded interest on notes payable to supplier amounts to ₱500.
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4. Based on the above data, which of the following statements is incorrect?
a. The total free asset amounts to ₱77,910.
b. The amount of partially secured creditors is ₱12,500.
c. The gain on realization is ₱33,750.
d. The estimated deficiency to unsecured creditors and estate deficit is the equal.
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5. Based on the above data, which of the following statements is correct?
a. The net loss on realization and liquidation is ₱78,990.
b. The total estimated payment to unsecured creditors is ₱180,410.
c. The estimated percentage of recovery of partially secured creditors is 94.33%.
d. The actual percentage of recovery of unsecured creditors without priority is 65.96%.
The next two questions are based on the following information:
A company enters into bankruptcy proceedings on April 30. Its Statement of Financial Position on that date is as
follows:
Cash
Merchandise
Plant and equipment, net
Total
₱
₱
75,000
180,000
300,000
555,000
Accounts payable
Loan payable
Stockholders' equity
Total
₱
210,000
450,000
(105,000)
₱ 555,000
None of the liabilities are secured. The following transactions occur between April 30 and August 31:
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Page 3 of 3 | AFAR Pre-recorded Handout 02
MARK ALYSON B. NGINA, CMA, CPA
CORPORATE LIQUIDATION
REO.CPA.ACADEMICS.F2.01.00
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Merchandise with a book value of ₱135,000 was sold for ₱90,000.
Plant and equipment with a book value of ₱120,000 was sold for ₱75,000.
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Wages and administrative expenses of ₱30,000 were accrued.
An initial payment of 30 cents per peso of indebtedness was paid to the unsecured creditors.
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6. The statement of realization and liquidation would show total (1)"assets to be realized" and (2) assets not realized of:
a. (1) ₱480,000; (2) ₱315,000
c. (1) ₱315,000; (2) ₱225,000
b. (1) ₱315,000; (2) ₱480,000
d. None of the above
7. The statement of realization and liquidation would show (1) "liabilities not liquidated" and (2) "liabilities to be
liquidated" of
a. (1) ₱462,000; (2) ₱690,000
c. (1) ₱660,000; (2) ₱492,000
b. (1) ₱492,000; (2) ₱660, 000
d. None of the above
110,000
120,000
140,000
50,000
180,000
Liabilities assumed
Liabilities liquidated
Liabilities not liquidated
Supplementary credits
Supplementary charges
₱
60,000
120,000
150,000
170,000
156,000
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₱
Assets to be realized
Assets acquired
Assets realized
Assets not realized
Liabilities to be liquidated
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8. The following data were taken from the statement of realization and liquidation of Bagsak Corporation for the threemonth period ended December 31:
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The net income (loss) for the period is
a. ₱56,000 loss
b. ₱56,000 net income
c. ₱40,000 loss
d. ₱40,000 gain
Use the following data to answer the next two questions:
The Statement of Realization and Liquidation for Goes Out Corporation is as follows:
₱
720,000
480,000
660,000
960,000
840,000
Liabilities assumed
Liabilities not liquidated
Supplementary credits
Supplementary debits
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Assets to be realized
Assets acquired
Assets realized
Liabilities to be liquidated
Liabilities liquidated
₱
600,000
780,000
1,320,000
1,260,000
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Retained earnings decreased by ₱144,000. The ending balances of common stock and retained earnings are
₱1,200,000 and (₱900,000), respectively.
c. ₱672,000
d. ₱684,000
10. The ending balance of cash is
a. ₱900,000
b. ₱780,000
c. ₱684,000
d. ₱564,000
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9. The beginning balance of cash is
a. ₱900,000
b. ₱780,000
"We can achieve anything in life - the only limiting factors are in our own thoughts"
“Let your fear instruct and prepare you. Don’t let it stop you.
Move confidently ahead and live with all the fullness that life can offer.”
☺ -- END OF HANDOUT -- ☺
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(074) 665 6774
0916 840 0661
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