CORPORATE LIQUIDATION H101 MR. ALBERT D.

CRUZ, CPA, CMA

PROBLEM A. The Ace Corporation, which is undergoing liquidation, has the following
condensed balance sheet as of July 1, 2015:
Assets Liabilities and Shareholders’ Equity
Cash P 396,000 Salaries Payable P 120,000
Receivables (net) 924,000 Accounts Payable 165,000
Inventory 231,000 Bonds Payable 170,000
Prepaid Expenses 63,000 Bank Loan Payable 1,300,000
Equipment (net) 700,000 Note Payable 594,000
Furniture 200,000 Ordinary shares 240,000
Goodwill 60,000 Deficit (15,000)
Total P 2,574,000 Total P 2,574,000
Additional information:
 The bonds payable above was secured by the furniture with realizable amount of
P180,000 while the entire receivable with realizable amount of P900,000 has been
the collateral for bank loan payable.
 Notes payable was secured by equipment with realizable amount of P594,000.
 Inventory could be sold for P201,000.
 Liquidation expenses incurred by the trustee amounted to P20,000 and unrecorded
tax payable amounted to P15,000.
1. How much is the net free assets?
2. How much is the estimated deficiency to unsecured creditors?
3. What is the estimated net gain/ (loss) on realization of assets?
4. How much is the estimated payment to partially secured creditors?
5. What is the estimated recovery percentage for unsecured without priority
liabilities?
6. What is the estimated recovery percentage for partially secured liabilities?

PROBLEM B. Mackenzie Company filed a voluntary bankruptcy petition on August 15, 2016
and the statements of affairs reflect the following amounts:
Book Value Fair Value
Assets pledged to fully secured creditors P625,000 P2,312,500
Assets pledged to partially secured creditors 1,125,000 750,000
Free assets 2,625,000 2,000,000
P4,375,000 P5,062,500

Liabilities with priority P437,500

Fully secured liabilities 1,625,000
Partially secured liabilities 1,250,000
Unsecured liabilities 3,375,000
P6,687,500
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?

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 MR. ALBERT D. CRUZ, CPA, CMA

PROBLEM C. The following data are taken from the statement of affairs of Bade Company
Unsecured liabilities without priority 980,000
Partially secured liabilities 525,000
Fully secured liabilities 262,500
Unsecured liabilities with priority 61,250
Free assets (fair value P350,000) 612,500
Assets pledged to partially secured liabilities (fair value P455,000) 647,500
Assets pledged to fully secured liabilities (fair value P656,250) 787,500
8. Compute the expected recovery percentage for unsecured without priority
creditors.

PROBLEM D. Liberty Corp. has the following balances in July 1, 2016:

Cash P5,500 Accounts payable P59,500
Accounts receivable 35,000 Wages payable 25,000
Inventories 60,000 Tax payable 35,000
Notes receivable 78,000 Notes payable 65,000
Equipment 256,000 Mortgage payable 175,000
Capital stock 120,000
Deficit (45,000)
Total P434,500 Total P434,500

Assets were realized during the month as follows:

a. Existing beginning balance accounts receivable were collected for 7/8 only of the recorded
amount, the remaining was worthless.
b. Half of the inventories were sold for P45,000 cash while the remaining were sold on credit
for P10,500.
c. Notes receivable were collected in the amount of P68,500 only and the rest was deemed
worthless.
d. The equipment was sold for P225,000 cash.

Additional information:
 Interest were accrued during the month as follows:
a. Notes receivable P 1,500
b. Notes payable 5,500
c. 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.

9. How much was the net gain or loss on the realization and liquidation in July?
10. How much was the estate deficit as of the end of the month?
11. How much was the ending balance of cash?

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 MR. ALBERT D. CRUZ, CPA, CMA

PROBLEM E. Finish Corporation has been undergoing liquidation since January 1. As of June
30, its condensed statement of realization and liquidation is presented below:

Assets realized P 525,000

Interest on investment 2,625
Purchases 26,250
Assets acquired 87,500
Liabilities assumed 26,250
Payment of expenses of trustee 131,250
Liabilities to be liquidated 1,137,500
Sales on account 87,500
Assets not realized 735,000
Liabilities not liquidated 557,375
Sales for cash 437,500
Assets to be realized 1,662,500
Liabilities liquidated 612,500

12. The net gain (loss) on realization and liquidations in:

A. P306,250 C. (P126,000)
B. (P306,250) D. P126,000

PROBLEM F. The following data were taken from the statement of realization and liquidation
of Cactus Corporation for the quarter ended June 30, 2015

Liabilities to be liquidated P 285,000

Supplementary charges 169,100
Liabilities not liquidated 210,000
Supplementary credits 192,500
Assets acquired 136,000
Liabilities liquidated 158,000
Assets to be realized 107,500
Assets realized 175,000
Liabilities assumed 83,000

The beginning capital balances of ordinary shares and retained earnings are P 102,000 and
P29,600, respectively. A net income of P 87,400 for the period was earned.

13. How much is the ending balance of cash?

A. P293,000 C. P209,100
B. P296,500 D. P309,100

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