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ReSA: CORPORATE LIQUIDATION1.) Part Corporation is a parent, having purchased 80% of Sand Company’s common stock at par value for P800,000. Sand company is in a financial difficulty. The parent granted an unsecured loan of P400,000 to the subsidiary. And accounting statement of affairs for Sand Comp...

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ReSA: CORPORATE LIQUIDATION 1.) Part Corporation is a parent, having purchased 80% of Sand Company’s common stock at par value for P800,000. Sand company is in a financial difficulty. The parent granted an unsecured loan of P400,000 to the subsidiary. And accounting statement of affairs for Sand Company shows a dividend of 40%. Part Corporation can expect to receive payment for its investment in Sand Company approximately: A.) P640 000 C.)P150 000 B.) P320 000 D.)P 0 Since there is a parent and a subsidiary relationship, any intercompany accounts are eliminated from consolidated point of view. 2.) The following items were displayed in the statement of affairs of AA Company: Unsecured liabilities without priority……………………. P 90 000 Stockholders’ equity……………………………………… 36 000 Loss on realization of assets……………………………. 45 000 Estimated administrative costs that have been entered in the accounting records………………………………… 4 500 Unsecured liabilities with priority…………………………. 10 000 Based on the foregoing information, what percentage of their claims should unsecured, nonpriority creditors expect to receive on the liquidation of AA Company? A.) 85% C.) 79.50% B.) 100% D.) 86.50% Unsecured liabilities without priority……………….. P 45 000 Stockholders’ equity…………………………………. 36 000 Unsecure liabilities with priority…………………….. 10 000 Loss on realization of assets………………… …….. ( 45 000) Total estimated amount available………………….. 91 000 Less: Estimated administrative costs…… 4 500 Unsecured liabilities with priority… 10 000 (14 500) Estimated amount available for unsecured, non-priority creditors 76,500 (76,500/91,000) 85% 3.) Amounts related to the statement of affairs of Windup Company, in bankruptcy liquidation as of April 1, 20x2, were as follows: Assets pledged for fully secured liabilities…………… P 90 000 Assets pledged for partially secured liabilities………. 50 000 Free assets……………………………………………… 272 000 Fully secured liabilities………………………………… 60 000 Partially secured liabilities…………………………….. 80 000 Unsecured liabilities with priority……………………... 40 000 Unsecured liabilities without priority…………………. 330 000 Compute the cost per peso that unsecured creditors may expect to receive from Windup Company. A.) P.61 C.) P. 76 D.) .81 B.) .70 Estimated deficiency to unsecured creditors: Free assets: Assets pledged to fully secured liabilities (80 000 – 60 000)…………………………………………… P 20 000 Free assets…………………………………………………….. 272 000 Total free assets………………………………………………………….P 292 000 Less: Unsecured liabilities with priority…………………… ……… 40 000 Net free assets……………………………………………………… ….P 252 000

Less: Unsecured liabilities without priority: Partially secured liabilities (80 000 – 50 000)…………P30 000 Add: Unsecured liabilities without priority…………… 330 000 Estimated deficiency to unsecured liabilities……………………………. Expected recovery % of Unsecured liabilities (252 000/360 000)

360 000 P180 000 70% or P.70

4.) Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement of realization and liquidation is presented below: Assets: Assets to be realized…………………………………………….P 1 375 000 Assets acquired…………………………………………………… 750 000 Assets realized…………………………………………………… 1 200 000 Assets not realized………………………………………………… Liabilities: Liabilities liquidated………………………………………… …P Liabilities not liquidated……………………………………………… Liabilities to be liquidated……………………………………………… Liabilities assumed…………………………………………………… Revenues and Expenses: Supplementary charges/debits………………………...........P Supplementary credits……………………………………………

1 375 000 1 875 000 1 700 000 2 250 000 1 625 000 3 125 000 2 800 000

Compute the ending cash account assuming that common stock and deficits are P1 500 000 and P500 000, respectively: A.) P425 000 C.) P1 325 000 B.) P 575 000 D.) P1 375 000 Total liabilities (refer to Liabilities not liquidated)……………………P Add: Stockholders’ equity (1 500 – 500 000)……………………… Total LSHE = Total Assets…………………………………………….P Less: Non-cash assets (refer to Assets not liquidated)…………… Cash balance, ending………………………………………………….P

1 700 000 1 000 000 2 700 000 1 375 000 1 325 000

Items 5 and 6 are based on the following information: A company enters into bankruptcy proceedings on April 30. Its balance sheet on that date is as follows: Cash P 25 000 Accounts payable P 70 0000 Merchandise 60 000 Loan payable 150 000 Plant and equipment, net 100 000 Stockholders’ equity (35 000) Total P 185 000 Total P 185 000 None of the liabilities are secured. The following transactions occur between April 30 and August 31: Merchandise with a book value of P45 000 was sold for P30 000. Plant and equipment with a book value of P40 000 was sold for P25 000. Wages and administrative expenses of P10 000 were accrued. An initial payment of 30 cents per peso of indebtedness was paid to the unsecured creditors. 5.) The statement of realization and liquidation would show a total (1) “assets to be realized” and (2) assets not realized of: A.) (1) P160 000; (2) P105 000 C.) (1) P105 000; (2) P75 000 B.) (1) P105 000; (2) P160 000 D.) None of the above. (1)P160 000; (2)P75 000    

6.) The statement of realization and liquidation would show (1) “liabilities not liquidated” and (2) “liabilities not liquidated” of A.) (1) P154 000; (2) P230 000 C.) (1) P220 000; (2) P164 000 B.) (1) P164 000; (2) P220 000 D.) None of the above. 7.) Lakeside Bank holds a P100 000 note secured by a building owned by Fly-By –Night Manufacturing, which has filed for bankruptcy. If the property has a book value of P120 000 and a fair market value of P90 000, what is the best way to describe the note held by Second Bank and Trust Company? The bank has a(n): A.) A secured claim of P100 000 B.) Unsecured claim of P100 000 C.) Secured claim of P90 000 and an unsecured claim of P10 000 D.) Secured claim of P100 000 and an unsecured claim of P20 000 It is a partially secured liability. 8.) Rap Company is insolvent and its statement of affairs shows the following information: Estimated gains on realization of assets…………………………P 1 440 000 Estimated losses on realization of assets……………………….. 2 000 000 Additional assets…………………………………………………… 1 280 000 Additional liabilities………………………………………………… 960 000 Capital stock……………………………………………………….. 2 000 000 Deficit……………………………………………………………….. 1 200 000 The pro-rate payment on the peso to stockholders (estimated amount to be recovered by stockholders) is: A.) P.30 B.) P.43

C.) P.57 D.) P.70

Estimated gains on realization of assets Estimated losses on realization of assets

P (1 440 000) 2 000 000 560 000

Capital stock Deficit

P 2 000 000 (1 200 000) 800 000

(560 000/800 000)

70% or .7

9.) Second City bank holds a P50 000 note secured by a building owned by Desk Drawer Software, which has filed for bankruptcy under the Insolvency Law. If the property has a book value of P60 000 and a fair market value of P45 000, what is the best way to describe the note held by Second City Bank? The bank has: A.) Secured claim of P50 000 B.) Unsecured claim of P50 000 C.) A secured claim of P5 000 and unsecured claim of P45 000 D.) A secured claim of P45 000 and unsecured claim of P5 000 10.) S and L owes the Merlin Corporation P6 000 on account, which is secured by accounts receivable with a book value of P5 000. Its statement of affairs lists the accounts receivable securing the Merian account with an estimated realizable value of P4 500. If the dividend to general unsecured creditors is 80%, how much can Merian expect to receive? A.) P6 000 C.) P5 700 B.) P5 800 D.) P4 800 4 500 + (1 500 x 80%) = P5 700

Items 11 to 15 are based on the following information: 11.) NG Company filed a voluntary bankruptcy petition, and the settlement of affairs reflected the following amounts: Assets Book Value Estimated Current Value Assets pledged with fully secured creditors P 450 000 P 550 000 Assets pledged partially secured creditors 270 000 180 000 Free assets 630 000 480 000 P1 350 000 P1 215 000 Liabilities Liabilities with priority

P 105 000

Fully secured creditors

390 000

Partially secured creditors

300 000

Unsecured creditors

810 000 P1 605 000

Assume the assets are converted to cash to their estimated current values. What amount of cash will be available to pay unsecured, non-priority claims? A.) P380 000 C.) P480 000 B.) P400 000 D.) P540 000 (555 000 – 390 000) + 480 000 = 645 000 – 105 000 = P540 000 12.) The following data were taken from the statement of affairs for Liquo Company: Asset pledged for fully secured liabilities (fair value, P75 000)…………………………P 90 000 Assets pledged to partially secured liabilities (fair value, P52 000)…….……………………P74 000 Free assets (fair value, P40 000)……………………..P70 000 Unsecured liabilities with priority……………………...P7 000 Fully secured liabilities…………………………………P30 000 Partially secured liabilities……………………………..P60 000 Unsecured liabilities without priority………………….P112 000 The total estimated deficiency to unsecured creditors amounted to: A.) P27 000 B.) P34 000 C.) P35 000 D.) P42 000 (40 000 + 45 000 + 7000) = 78 000 – 120 000 = P42 000 13.) AA Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of 30 cents on the peso. CC holds a note receivable from AA for P90 000, collateralized by an asset with a book value of P60 000 and a liquidation value of P30 000. The amount to be realized by CC on this note is: C.) P60 000 A.) P48 000 B.) P90 000 D.) P30 000 30 00 + [30% x (90 000 – 30 000)] = P48 000 14.) OTG Co., filed a bankruptcy petition and liquidated its non-cash assets. OTG was paying forty cents on the dollar for unsecured claims. GG Co., held a mortgage of P150 000 on land that was sold for P110 000. The total amount of payment that GG should have received is calculated to be: A.) P110 000 C.) P60 000 D.) P134 000 B.) P126 000

[110 000 + (150 000 – 110 000) X 40%] = P126 000 15.) Happy Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of thirty cents on the peso. Unhappy holds a note receivable from Happy collateralized by an asset with a book value of P50 000 and a liquidation of P25 000. The amount to be realized by Unhappy on this note is: A.) P25 000 C.) P75 000 B.) P40 000 D.) P50 000 25 000 + [30% x (75 000 – 25 000)] = P40 000 16.) Splat Company filed a voluntary bankruptcy petition, and the statement of affairs reflected the following amounts: Assets Estimated Book Value Current Value Assets pledged with fully secured creditors P900 000 P1 10 000 Assets pledged partially secured creditors 540 000 360 000 Free assets 1 260 000 960 000 P2 700 000 P2 430 000 Liabilities Liabilities with priority

P210 000

Fully secured creditors

780 000

Partially secured creditors

600 000

Unsecured creditors

1 620 000 P3 210 000

Assume that the assets are converted to cash at their estimated current values. What amount of cash will be available to pay unsecured non-priority claims? A.) P720 000 C.) P960 000 B.) P840 000 D.) P1 080 000 [(1 110 000 – 780 000) + 960 000] – 210 000 = P1 080 000 Items 17 to 19 are based on the following information: Ruby Company recently petitioned for bankruptcy and is now in the process of preparing a statement of affairs. The carrying values and estimated fair values of the assets of Ruby Company are as follows: Carrying Value

Fair Value

Cash……………………

P20 000

P20 000

Accounts receivable….

45 000

30 000

Inventory………………

60 000

35 000

Land……………………

75 000

70 000

Building, net…………..

180 000

100 000

Equipment, net……….

170 000

80 000

P550 000

P335 000

Debits of Ruby are as follows: Accounts payable

P 60 000

Wages payable (all have priority)

10 000

Taxes payable

10 000

Notes payable (secured by receivable and inventory) Interest on Notes payable Bonds payable (secured by land and building) Interest on bonds payable

120 000 6 000 150 000 7 000 P 363 000

17.)What is the total amount of unsecured claims? A.) P93 000 C.) P121 000 B.) P113 000 D.) P126 000 60 000 + [(120 000 + 6000) – (30 000 + 35 000) = 121 000 18.)What estimated amount will be available for general unsecured creditors upon liquidation? A.) P28 000 C.) P113 000 D.) P121 000 B.) P93 000 20 000 + 80 000 + [170 000 – (150 000 + 7 000)] = 113 000 – (10 000 + 10 000) = 93 000 19.)What is the estimated dividend percentage? A.) 23% C.) 77% B.) 93% D.) 68% 93 000/121 000 = 77% 20.) Eagle Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims. Thirty cents is the rate that will be paid on unsecured claims. Hawk hold a note receivable from Eagle for P100 000 collateralized by an asset with a book value of P50 000, with a liquidation value of P50 000. The amount to be realized by Hawk on this note is: A.) P65 000 C.) P55 000 B.) P70 000 D.) P35 500 50 000 + [.30 x (100 000 – 50 000) = P65 000...