Advanced Accounting - PART 1

Chapter 6

Problem 6-1

Fully secured Creditors

Notes payable
Add: Interest (1,600 * 50%)
Total
Less: Building - P75,000

Notes payable
Add: Interest
Total
Less: Notes receivable P40,800

Free assets
Cash
Accounts receivable
Inventory
Prepaid expenses
Total free assets
Less: Liabilities with priority
Accrued wages
Taxes Payable
Net free assets

Partial secured creditors

Notes payable
Less: Equipment

Unsecured liabilities without priority

Notes payable
Accounts payable
Total Unsecured liabilities without priority
Defficiency

Expected recovery rate (Net free Assets / Total Unsecured liabilities without prioirty)

Deficiency rate (Defficiency / Total Unsecured liabilities without priority)

 Fully secured creditors
Partially secured creditors
Unsecured liabilities with priority
Unsecured liabilities without priority

Cash
Accounts receivable
Notes receivable and related interest
Inventory
Building
Equipment
Prepaid insurance
Total realizable value

1.) Compute the estimated amount available to unsecured creditors (with and without priority)/total

Cash received:
Unsecured creditors with priority
Unsecured creditors without priority (185800 * 71.15%)
Total cash received by unsecured claims ( Total free assets)

Alternative Solutions
Free Assets
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Free Assets from Fully Pledged Assets - Building
Total Free Assets

2.) Compute the estimated amount available to unsecured creditors without priority / net free assets

Unsecured creditors without priority (185,800 * 71.15%) / net free assets

Alternative Solutions
Total Free Assets
Less: Liabilities with Priorities
Net Free Assets

Computation of recovery for each class of creditors

 Fully secured creditors
Partially secured creditors
Unsecured liabilities with priority
Unsecured liabilities without priority

Total assets measured at Net realizable value

Pledged assets
Free assets
Total

3.) Compute the amount of unsecured creditors without priority

4.) Compute the dividend to unsecured creditors without priority
5.) Compute the estimated payment to fully secured creditors
6.) Compute the estimated amount to partially secured creditors
7.) Compute the estimated amount to unsecured creditors with priority
8.) Compute the estimated amount to unsecured creditors without priority
9.) Compute the estimated payment to creditors
10.) Compute the estimated deficiency to unsecured creditors (100%-71.15%)
11.) Compute the estimated gain or loss on realization of assets

Gain on realization of assets

Loss on realization of assets

Carrying value
Cash 6,000
Accounts receivable 61,000
Notes receivable 51,200
Inventory 60,000
Equipment 13,200
Building 119,000
Prepaid Insurance 1,100
Goodwill 8,500
Balances

12.) Compute the estimated net loss

 Free Assets

20,000
800
20,800
20,800 54,200

40,000
800
40,800
40,800 -

6,000
50,000
30,000
400 86,400
140,600

6,000
2,400 8,400
132,200

Liabilities without
Priority

10,000
4,200 5,800

10,000
170,000 180,000
185,800
(53,600)

d liabilities without prioirty) 71.15%

thout priority) 28.85%

 Claims Recovery Recovery Rate
61,600.00 61,600.00 100.00%
10,000.00 8,326.80 83.27%
8,400.00 8,400.00 100.00%
180,000.00 128,073.20 71.15%
260,000.00 206,400.00

6,000.00
50,000.00
40,800.00
30,000.00
75,000.00
4,200.00
400.00
206,400.00

creditors (with and without priority)/total free assets -

8,400
* 71.15%) 132,200
tal free assets) 140,600

6,000
50,000
30,000
400
54,200
140,600

creditors without priority / net free assets 132,200

.15%) / net free assets 132,200

140,600
8,400
132,200
 Claims Recovery Recovery Rate
61,600 ### 100.00%
10,000 8,327 83.27%
8,400 ### 100.00%
180,000 128,073 71.15%
260,000 206,400

65,800
140,600
206,400

185,800
71.15%
61,600
8,327
with priority 8,400
without priority 128,073
206,400
rs (100%-71.15%) 28.85%

-
(105,100)

Realizable value Gain Loss Net gain

6,000 -
50,000 (11,000) (11,000)
40,800 (10,400) (10,400)
30,000 (30,000) (30,000)
4,200 (9,000) (9,000)
75,000 (44,000) (44,000)
400 (700) (700)
- (8,500) (8,500)
- (105,100) (113,600)

(113,600)