Chapter 6 Problem I 1. Statement of Affairs
MINER COMPANY Statement of Affairs May 31, 2012
Assets
Book Value
Realizable Value
P 50,000
Assets Pledged with Fully Secured Creditors: Notes Receivable
1,200
Accrued Interest Rec. Notes Payable
P39,800 1,000
P 40,800
40,000 800
40,800
Accrued Interest Pay.
119,000
Building Note Payable Accrued Interest Pay.
75,000 20,000 800
20,800
P 54,200
Assets Pledged with Partially Secured Creditors: 13,200 Equipment
4,200 10,000
Note Payable
6,000 61,000 60,000 1,100
Free Assets Cash Accounts Receivable Inventory Prepaid Insurance Goodwill
6,000 50,000 30,000 400 0
8,500 Total Net Realizable Value
140,600
Liabilities having Priority – Wages 6,000 Taxes
8,400 2,400
Net Free Assets
132,200
Estimated Deficiency to Unsecured Creditors
P 320,000
Book Value
53,600
P 185,800
Unsecure d
Equities Liabilities Having Priority:
P 6,000
P 6,000 Accrued Wages
2,400
2,400
P 8,400
Taxes Payable
60,000 1,600
Fully Secured Creditors: Notes Payable Accrued Interest Payable
60,000 1,600 61,600
10,000
Partially Secured Creditors:
10,000
Note Payable 4,200 Equipment
P 5,800
170,000 10,000 110,000 ( 50,000) P 320,000
Unsecured Creditors: Accounts Payable Notes Payable
170,000 10,000
Stockholders’ Equity Common Stock Retained Earnings (Deficit)
P 185,800
2. Deficiency Statement to determine estimated deficiency to unsecured creditors:
Deficiency Account May 31, 2012
Estimated Losses:
Accounts Receivable
Estimated Gains:
P 11,000
Common Stock
P 110,000
(50,000)
Notes Receivable
10,400
Retained Earnings
Inventory
30,000
Estimated Deficiency to
Buildings
44,000
Unsecured Creditors
Equipment
Prepaid Insurance
Goodwill
53,60 0
9,000
700
8,500
P113,600
P 113,600
Estimated final dividend rate to unsecured creditors is: P132,200/P185,800 = 71.15% Problem II
1.
Down Dog Corporation Statement of Affairs June 30, 2014
Book Value P165,000
3,000 72,000 60,000
______ P300,000
Assets Pledged with partially secured creditors Equipment-net P87,000 Less: Note payable and accrued interest (96,000) Unsecured amount (See below) (9,000) Free Assets Cash 3,000 Accounts receivable-net 48,000 Inventories 72,000 Total net realizable value 123,000 Less: Priority liabilities – wages payable (45,000) Total available for unsecured creditors 78,000 Estimated deficiency to unsecured creditors 30,000 P108,000
Deficiency Account Realizable Value (Loss/Gain) P
0
(24,000) 12,000
______ (90,000)
Unsecured Equities
Book Value P 45,000
96,000
72,000 27,000 180,000 (120,000) P300,000
Priority liabilities Wages payable (assumed under P4,650 per employee) Partially secured creditors Note payable and accrued interest Less: Equipment pledged as security
Liabilities
P 45,000 P 96,000 (87,000)
Unsecured creditors Accounts payable Rent payable
P 9,000 72,000 27,000
Stockholders’ equity Capital stock Retained earnings (deficit)
______ P108,000
Estimated Deficiency
180,000 (120,000) P 60,000 P(30,000)
2. Estimated payments per dollar for unsecured creditors Cash available
P210,000
Distribution to partially secured and unsecured priority creditors: Note payable and interest P87,000 Administrative expenses 24,000 Wages payable 45,000 Available to unsecured nonpriority creditors
(156,000) P 54,000
Note payable and interest (unsecured portion) Accounts payable Rent payable Unsecured nonpriority claims
P 9,000 72,000 27,000 P108,000
(P54,000 / P108,000 = $0.50 per dollar) Expected recovery for each class of claims Partially secured Note payable and interest Secured portion Unsecured portion (P9,000 × 0.50)
P87,000 4,500
P91,500
Unsecured priority Administrative expenses Wages payable
P24,000 45,000
69,000
Unsecured nonpriority Accounts payable (P72,000 × 0.50 Rent payable (P27,000 × 0.50) Total payments
P36,000 13,500
49,500 P210,000
Problem III Realizable value of all assets (P635,000 + P300,000 + P340,000)P1,275,000 Allocated to:
Fully secured creditors Partially secured creditors Unsecured creditors with priority Remainder available to general unsecured creditors Payment rate to general unsecured creditors (Including balance due to partially secured creditors) P559,000 / (P1,165,000 + (P400,000 - P300,000)) Realizable value of assets: Assets pledged to fully secured creditors Assets pledged to partially secured creditors Free assets Total realizable value
(316,000) (300,000) (100,000) P559,000
44.2% P635,000 300,000 340,000 P1,275,000
Amounts to be paid to: Fully secured creditors P316,000 Partially secured creditors [P300,000 + (0.442 × P100,000)] 344,200 Unsecured creditors with priority 100,000 General unsecured creditors (0.442 × P1,165,000) 514,800* Total P1,275,000 *Rounded P130 Problem IV Free Assets: Current Assets .................................................................. Buildings and Equipment ................................................. Total .........................................................................
P 35,000 110,000 P145,000
Liabilities with Priority: Administrative Expenses .................................................. Salaries Payable (only P3,000 per employee)................... Income Taxes ................................................................... Total .........................................................................
P 20,000 6,000 8,000 P 34,000
Free Assets After Payment of Liabilities with Priority (P145,000 – P34,000) ......................................................
P111,000
Unsecured Liabilities Notes Payable (in excess of value of security) ................. Accounts Payable ............................................................. Bonds Payable .................................................................. Total .........................................................................
P 30,000 85,000 70,000 P185,000
Percentage of Unsecured Liabilities To Be Paid: P111,000/P185,000 = 60 % Payment On Notes Payable: Value of Security (land) .................................................... 60% of Remaining P30,000 .............................................. Total Collected by holders ................................................ Problem V Free Assets: Cash
.........................................................................
P 90,000 18,000 P108,000
P30,000
Receivables (30 percent collectible).................................. Inventory ......................................................................... Land (value in excess of secured note: P120,000 – P110,000).................................................. Total .........................................................................
15,000 39,000 10,000 P94,000
Less: Liabilities with priority Salary payable (below maximum)............................... Free assets available...................................................
(10,000) P84,000
Unsecured Liabilities: Accounts payable.............................................................. Bonds payable (less secured interest in building: P300,000 – P180,000)................................... Unsecured liabilities....................................................
P90,000 120,000 P210,000
Percentage of unsecured liabilities to be paid: P84,000/P210,000 = 40% Amounts to be paid for: Salary payable (liability with priority to be paid in full) ......................................................................... Accounts payable (unsecured—will collect 40% of debts of P90,000).................................................... Note payable (fully secured by land—will collect entire balance)........................................................... Bonds payable (partially secured—will collect P180,000 from building and 40 percent of the remaining P120,000)...................................................
P10,000 P36,000 P110,000 P228,000
Problem VI
Class of Creditors Fully secured liabilities Partially secured liabilities Unsecured liabilities with priority Unsecured liabilities without priority
Total Creditor’s Claims 183,600 54,600 30,810 182,500
Total Amounts Expected to be Recovered 183,600 51,720 30,810 116,800
% of Total Claims Expected to be Recovered 100.0 94.7 100.0 64.0
Problem VII 1.
Total estimated proceeds Less asset proceeds claimed by secured creditors: Notes payable and interest (from proceeds of receivables and inventory) Mortgage payable and interest (from proceeds of land and building) Total available to unsecured claimants. Less distributions to unsecured claims with priority: Wages payable Taxes payable
P910,000
P150,000 320,000
P 10,000 20,000
470,000 P440,000
30,000
Amount available for unsecured claims 2.
3.
P410,000
Unsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) Accounts payable Total claims ofunsecured creditors Dividend to Unsecured Creditors P410,000 ÷ P640,000 = 64.1%
P380,000 260,000 P640,000
Unsecured portion of notes payable and Interest Dividend on unsecured amount Amount received on unsecured portion Proceeds from receivables and inventory Total Received
P380,000 64.1% P243,580 150,000 P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3% Problem VIII 1.
WILBUR CORPORATION STATEMENT OF AFFAIRS DECEMBER 31, 2008 Assets Estimated Current Values
Book Value
P 40,000
50,000 110,000
(1) Assets pledged with fully secured creditors: Accounts receivable (net) Less: 10% note payable and interest Land Plant and equipment (net) Less: Mortgages payable and interest
20,000
35,000
4,000 35,000 55,000
(2) Assets pledged with partially secured creditors: Marketable securities Less: 10% note payable and interest Inventory Less: Accounts payable (3) Free assets: Cash Accounts receivable (net) Inventory
Estimated Amount Available to Unsecured Claims
Estimated Gain (Loss) on Realizatio n
P 40,000 38,500
P 1,500
P 65,000 100,000 P165,000 (157,500)
P 15,000 (10,000) 7,500
P 16,000
(4,000)
(20,800) P 32,000 (60,000) P 4,000 35,000 50,000
(3,000)
4,000 35,000 50,000
(5,000)
6,000 140,000 48,000
P 543,000
Prepaid insurance Plant and equipment (net) Franchises
1,000 60,000 15,000
1,000 60,000 15,000
Estimated amount available Less: Creditors with priority Net available to unsecured creditors Estimated deficiency
P 174,000 (43,000) P 131,000 45,000
Total unsecured debt
P 176,000
(5,000) (80,000) (33,000)
(P 125,000)
2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43% Problem IX
Assets to be realized Old Receivebles, net 50,000 Marketable Securities 20,000 Old Inventory 72,000 Depreciable Assets, net 120,000
Smith Company Statement of Realization and Liquidation Assets Assets Realized P
Old Receivbles 28,000 New Receivbles 65,000 Marketable Securities 15,000 Sales of Inventory 100,000
Assets Acquired
Assets Not Realized
New Receivables 100,000
Old Receivables, net 22,000 New Receivables, net 35,000 Depreciable Assets 96,000
Supplementary Charges Old Current Payables 31,000
Supplementary Items Supplementary Credits P
P
Liabilities Not Liquidated Old Current Payables 34,000
Net Loss 7,000
P
Liabilities Liabilities to be Liquidated
Liabilities Liquidated Old Current Payables 31,000
P
Old Current Payables
P 65,000
Liabilities Incurred P
_____ ___
P43 3,000
P 433,000
Problem X Mallory Corporation Statement of Realization and Liquidation For the Three Months Ended July 31, 20X5 Assets Assets Beginning balances assigned 5/1/X5 Cash Receipts: Collection of Accounts Receivable Sale of inventory Sale of land and building Sale of machinery Cash Disbursements: Payment of salaries payable Partial payment of accounts pay. Partial payment of bank loan Ending balance
Assets Beginning balances assigned 5/1/X5 Cash Receipts: Collection of Accounts Receivable Sale of inventory Sale of land and building Sale of machinery Cash Disbursements: Payment of salaries payable Partial payment of accounts payPartial payment of bank loan Ending balance
Cash P 4,000
Non-Cash P720,000
60,000 170,000 20,000 70,000
Fully Secured P240,00 0
(240,00 0)
________ P 0 P
(70,000) (200,000) (340,000) (100,000)
(60,000) (170,000) (70,000) P24,000 P10,000 Liabilities Unsecured Partially With Without Owner's Secured Priority Priority Equity P270,00 P94,000 P 0 P120,000 0 (10,000) (30,000) (80,000) (30,000) (60,000 ) (180,00 10,000 0) ________ (90,000) 20,000 P P34,000 P30,000 0
________ P (30,000)
Multiple Choice Problems 1. d – since there is parent and subsidiary relationship, any intercompany accounts are eliminated from consolidated point of view. 2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000 – (P4,500 + P10,000) = P76,500 estimated amount available for unsecured, non-priority creditors; P76,500 P90,000 = 0.85] 3. c – it is a partially secured liability
4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000
5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000
6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000
7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000
8. d
9. No requirement
10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) = P93,000
12. c – P93,000/P121,000 = 77% rounded.
13. a Net Free Assets: (P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000 Total Unsecured Creditors without priority: (P400,000 – P300,000) + P600,000 = P700,000
14. c
Statement of Realization and Liquidation Assets to be Realized…………. Assets Acquired……………….. Liabilities Liquidated…………. Liabilities Not Liquidated……. Supplementary charges/ debits………………………
P 1,375,000 750,000 1,875,000 1,700,000
Assets Realized…………………..P 1,200,000 Assets Not Realized…………… 1,375,000 Liabilities to be Liquidated…. 2,250,000 Liabilities Assumed………….. 1,625,000 Supplementary credits……… 2,800,000
3,125,000 P 8,825,000
P 9,250,000
Net Gain……………………….. P 425,000
15. c Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000 +: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000 Total LSHE = Total Assets…………………………………………………………… P 2,700,000 -: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000 Cash balance, ending……………………………………………………………… P1,325,000
Theories 1 .
False
6.
False
11 .
False
16 .
c
21 .
a
26.
c
31 .
a
2 . 3 . 4 . 5 .
False
7.
True
False
9.
True
False
10 ,
True
32 . 33 . 34 . 35 .
c
True
27 . 28 . 29 . 30 .
a
True
22 . 23 . 24 . 25 .
c
8.
17 . 18 . 19 . 20 .
e
False
12 . 13 . 14 . 15 ,
36.
a
41.
a
46.
d
37 . 38 . 39 . 40 .
a
42 . 43 . 44 . 45 .
d
47 . 48 . 49 . 50 .
b
b c d
b d c
c a d
a a c
b b b
b d b
b c b
a c c