Advanced-Accounting-Part 1-Dayag-2015-Chapter-6 PDF

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Chapter 6Problem I Statement of Affairs - Formal MINER COMPANY Statement of Affairs May 31, 2012 Book Value Assets Realizable Value Assets Pledged with Fully Secured Creditors: P 50,000 Notes Receivable P39, 1,200 Accrued Interest Rec. 1,000 P 40,Notes Payable 40, Accrued Interest Pay. 800 40,119,00...

Description

Chapter 6 Problem I 1. Statement of Affairs - Formal MINER COMPANY Statement of Affairs May 31, 2012 Book Value

P 50,000 1,200

119,000

13,200

6,000 61,000 60,000 1,100 8,500

Assets Assets Pledged with Fully Secured Creditors: Notes Receivable P39,800 Accrued Interest Rec. 1,000 P 40,800 Notes Payable Accrued Interest Pay.

40,000 800

Building Note Payable Accrued Interest Pay.

20,000 800

40,800 75,000 20,800

Free Assets Cash Accounts Receivable Inventory Prepaid Insurance Goodwill Total Net Realizable Value Liabilities having Priority – Wages 6,000 Taxes Net Free Assets

6,000 50,000 30,000 400 0 140,600

2,400

Estimated Deficiency to Unsecured Creditors

P 6,000 2,400

60,000 1,600

10,000

P 54,200

Assets Pledged with Partially Secured Creditors: Equipment 4,200 Note Payable 10,000

P 320,000 Book Value

Realizable Value

P 6,000 2,400

P 8,400

Fully Secured Creditors: Notes Payable Accrued Interest Payable

60,000 1,600

61,600

Unsecured Creditors:

53,600 P 185,800 Unsecure d

Equities Liabilities Having Priority: Accrued Wages Taxes Payable

Partially Secured Creditors: Note Payable Equipment

8,400 132,200

10,000 4,200

P 5,800

170,000 10,000

110,000 ( 50,000)

Accounts Payable Notes Payable

170,000 10,000

Stockholders’ Equity Common Stock Retained Earnings (Deficit)

P 320,000

P 185,800

2. Deficiency Statement to determine estimated deficiency to unsecured creditors:

Estimated Losses: Accounts Receivable Notes Receivable Inventory Buildings

Deficiency Account May 31, 2012 Estimated Gains: P 11,000 Common Stock 10,400 30,000 44,000

P 110,000 (50,000)

Retained Earnings Estimated Deficiency to Unsecured Creditors

53,60 0

Equipment Prepaid Insurance Goodwill

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. Formal Down Dog Corporation Statement of Affairs June 30, 2014

Assets Pledged with partially secured creditors P165,000 Equipment-net P87,000 Less: Note payable and accrued interest Unsecured amount (See below)

Deficiency Account Realizable Value (Loss/Gain)

Book Value

Free Assets 3,000 Cash 3,000 72,000 Accounts receivable-net 60,000 Inventories 72,000 Total net realizable value Less: Priority liabilities – wages payable Total available for unsecured creditors ______ Estimated deficiency to unsecured creditors P300,000 P108,000

(78,000) (96,000) (9,000)

P

0

48,000

(24,000) 12,000

123,000 (45,000) 78,000 30,000

______ (90,000)

Unsecured Equities

Book Value Priority liabilities P Wages payable (assumed under P4,650 per employee)

P 45,000

Partially secured creditors 96,000 Note payable and accrued interest Less: Equipment pledged as security

P 96,000 (87,000)

Unsecured creditors 72,000 Accounts payable 27,000 Rent payable

Liabilities

45,000

P 9,000

72,000 27,000

Stockholders’ equity 180,000 Capital stock

180,000

Retained earnings (deficit)

(120,000) (120,000) P300,000

______ P108,000

P 60,000

Estimated Deficiency

P(30,000)

2. Estimated payments per dollar for unsecured creditors Cash available 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 Note payable and interest (unsecured portion) Accounts payable Rent payable Unsecured nonpriority claims

P210,000

(156,000) P 54,000 P 9,000 72,000 27,000 P108,000

(P54,000 / P108,000 = P0.50 per peso) 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) Allocated to: Fully secured creditors Partially secured creditors Unsecured creditors with priority Remainder available to general unsecured creditors

P1,275,000 (316,000) (300,000) (100 ,000) P559,000

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

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) .................................................... P 90,000 60% of Remaining P30,000 .............................................. 18,000 Total Collected by holders ................................................ P108,000

Problem V Free Assets: Cash ......................................................................... Receivables (30 percent collectible).................................. Inventory ......................................................................... Land (value in excess of secured note: P120,000 – P110,000).................................................. Total .........................................................................

P30,000 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

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:

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

P910,000

P150,000 320,000

470,000 P440,000

Wages payable Taxes payable Amount available for unsecured claims 2.

3.

P 10,000 20,000

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%

30,000 P410,000

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, 20x4 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

(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)

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

(3,000)

4,000 35,000

55,000 6,000 140,000 48,000

Inventory Prepaid insurance Plant and equipment (net) Franchises

50,000 1,000 60,000 15,000

Estimated amount available Less: Creditors with priority Net available to unsecured creditors Estimated deficiency

50,000 1,000 60,000 15,000

(5,000) (5,000) (80,000) (33,000)

P 174,000 (43,000) P 131,000 45,000

P 543,000

(P 125,000) Total unsecured debt

P 176,000

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

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

_____

34,000

___ P43 3,000

P 433,000

Problem X Mallory Corporation Statement of Realization and Liquidation For the Three Months Ended July 31, 20x5 Assets Cash Non-Cash P 4,000 P720,000

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 Cash Receipts: Collection of Accounts Sale of inventory Sale of land and building Sale of machinery Cash Disbursements: Payment of salaries payable Partial payment of accounts Partial payment of bank loan Ending balance

Fully Secured P240,00

Partially Secured P270,00

60,000 170,000 20,000 70,000

(70,000) (200,000) (340,000) (100,000)

(60,000) (170,000) (70,000) P24,000

P10,000

Liabilities Unsecured With Without Owner's Priority Priority Equity P94,000 P 0 P120,000 (10,000) (30,000) (80,000) (30,000)

(240,00

________ P

(60,000 (180,00 10,000 (90,000) ________ 20,000 P P34,000 P30,000

________ P

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. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000 9. d 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 - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000 + Liq. expenses P40,000 = P165,000. 15. 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

16. No requirement 17. 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 18. P440,000 Total Free Assets: Fully secured: Land and building: P650,000 – (P300,000 + P20,000) = P 330,000 Free assets: Cash 10,000 Equipment 100,000 P Or,

440,000

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/total free 19. P410,000 Total available to unsecured claimants/total free Less distributions to unsecured claims with priority: Wages payable Taxes payable Amount available for unsecured claims/net free assets

P910,000

P150,000 320,000

470,000 P440,000

P440,000

P 10,000 20,000

30,000 P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), or Unsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) P380,000 Accounts payable 260,000 Total claims of unsecured creditors P640,000

21. 64.1% Dividend to unsecured creditors P410,000 ÷ P640,000 = 64.1% 22. P320,000 = P300,000 + P20,000 23. P393,580 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 x 64.1% P243,580 150,000 P393,580

Dividend to note holders: P393,580 ÷ P530,000 = 74.3% 24. P30,000 25. P166,666 = P260,000 x 64.1 26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to rounding-off) 27. P230,000 Net free assets (No. 19) P410,000 Less: Unsecured creditors without priority (No. 20) 640,000 P230,000 28. P340,000 = P910,000 – P1,250,000 29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities) 30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is the formal presentation of statement of affairs

Estimated Net Realizable Value

Book Value Assets Assets pledged with fully secured creditors: 98,500 Land and Bldg 92,800 5,800 Investment in Calandir 15,000 Total 107,800 Assets pledged with partially secured creditors: 41,000 Inventory 20,000 43,000 Equipment 8,000 Free Assets: 1,850 Cash 1,850 21,200 Accounts Rec 17,000 15,000 Note Rec 15,000 Estimated Amount Avail for unsecured creditors with and without priority Less unsecured creditors with priority Estimated amounts for unsecured creditors without priority (Net Free Assets): Net Realizable Amount Avail _______ Deficiency _______ 226,350 169,650 Book Liabilities Value and Owners Equity Fully Secured Creditors: 600 Accrued Mtg Interest 70,000 Mortgage Payable 375 Accrued N/P Interest 10,000 Note Payable Total Partially Secured Creditors: 50,000 Accounts Payable Unsecured Creditors with Priority: 3,775 Accrued Payroll Unsecured creditors without Priority: 40,625 Accounts Payable 10,00 Other Accrued Liabilities 0 185,375 Totals 40,975 Owner Equity 226,350

31. 32. 33. 34. 35. 36. 37.

Estimated Secured Amount

Estimated Amt Avail for Unsecured Creditors 22,200 4,625

Estimated Gain or (Loss)on Liquidation (5,700) 9,200

(21,000) (35,000) 1,850 17,000 15,000

0 (4,200) 0

60,675 (3,775) 56,900 15,725 72,625

_______ (56,700)

Estimated Unsecu...