Quiz

Use the following information for questions 1 and 2:

Debtco, Inc., filed a voluntary bankruptcy petition for liquidation on 6/25/x6, and the statement
of affairs reflects the following amounts:
Book Estimated
Carrying Current
Amount Value
Assets:
Assets pledged with fully secured creditors P180,000 P195,000
Assets pledged with partially secured creditors 100,000 80,000
Free assets 220,000 160,000
P500,000 P 435,000
Liabilities:
Liabilities with priority P 45,000
Fully secured creditors 150,000
Partially secured creditors 120,000
Unsecured creditors 360,000
P 675,000
1. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash should the partially secured creditors
receive?
2. What total amount of cash will be available to pay the unsecured (nonpriority) creditors?
Use the following information for questions 3 and 4:
Todd, Inc., filed a voluntary bankruptcy petition for liquidation on 11/11/x6, and the
statement of affairs reflects the following amounts:
Book Estimated
Carrying Current
Amount Value
Assets:
Assets pledged with fully secured creditors P 230,000 P 300,000
Assets pledged with partially secured creditors 70,000 50,000
Free assets 310,000 46,000
Liabilities:
Liabilities with priority 60,000
Fully secured creditors 250,000
Partially secured creditors 90,000
Unsecured creditors 200,000

3. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash should the partially secured creditors
receive?
4. What total amount of cash will be available to pay the unsecured (nonpriority) creditors?
5. Vannco, Inc., is being liquidated. Unsecured creditors will be paid at the rate of P.30 on the
dollar. Lendorf is owed a P70,000 noninterest-bearing note receivable from Vannco
collateralized by equipment having a book value of P60,000 and a liquidation value of
P20,000. How much will Lendorf realize on this note?

Use the following information for questions 6 and 7:

Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities:
Net
Realizable
Book Value Value
Current Assets P 200,000 P 140,000
Land 70,000 100,000
Building 500,000 350,000
Equipment 300,000 160,000
Accounts Payable 240,000
Income taxes Payable 60,000
Mortgage Payable 510,000
Note Payable 80,000
The mortgage is secured by the land and building and the note payable is secured by the
equipment. Quincy expects that the expenses of administering the liquidation will total P40,000.
6. How much should Quincy expect to pay on the accounts payable?
7. How much should the mortgage holder expect to collect from the liquidation?
Use the following information for questions 8 to 10:
A company that was to be liquidated had the following liabilities:
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 10,000
Note Payable secured by land. . . . . . . . . . . . . . . . . . . . 100,000
Account Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
Administrative expenses for liquidation. . . . . . . . . . . . . 20,000
The company had the following assets: Book Value Fair Value
Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 100,000 95,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 75,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 200,000
8. Total free assets, before deducting liabilities with priority, are calculated to be what
amount?
9. Total liabilities with priority are calculated to be what amount?
10. Total unsecured liabilities are calculated to be what amount?
Use the following information for questions 11 to 14:
Bazley Co. had severe financial difficulties and was considering the possibility of filing a
bankruptcy petition. At that time, the company had the following assets (stated at net realizable
value) and liabilities.
Assets (pledged against debts of P91,000). . . . . . . . . . . . . . P 150,800
Assets (pledged against debts of P169,000). . . . . . . . . . . . . 65,000
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000
Liabilities with priority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,600
Unsecured creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000
11. In a liquidation, total free assets are calculated to be what amount?
12. Free assets after payment of liabilities with priority are calculated to be what amount?
13. Total unsecured liabilities are calculated to be what amount?
14. Total payment on partially secured debt is calculated to be what amount?

Use the following information for questions 15 to 18:

Lucky Co. had cash of P65,000, inventory worth P117,000 and a building worth P169,000.
Unfortunately, the company also had accounts payable of P234,000, a note payable of
P104,000 (secured by the inventory), liabilities with priority of P26,000 and a bond payable of
P195,000 (secured by the building).
15. Total free assets are calculated to be what amount?
16. Free assets after payment of liabilities with priority are calculated to be what amount?
17. Total unsecured liabilities are calculated to be what amount?
18. Total payment on the bond is calculated to be what amount?
19. A statement of financial affairs created for an insolvent corporation that was beginning the
liquidation process disclosed the following data (assets were shown at net realizable values):
Assets pledged with fully secured creditors. . . . . . . . . . . . . P 260,000
Fully secured liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 195,000
Assets pledged with partially secured creditors. . . . . . . . . 494,000
Partially secured liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637,000
Free assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,000
Unsecured liabilities with priority. . . . . . . . . . . . . . . . . . . . . . . . 208,000
Unsecured liabilities . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . 650,000
How much money appears to be available for unsecured creditors?
20. Hinsch Company is in bankruptcy and is being liquidated. The trustee has converted all
assets into P120,000 cash and has prepared the following list of approved claims:
Customer deposits (P1,000 from each of two customers
that ordered products that were never delivered) P 2,000
Property taxes payable 4,000
Accounts payable, unsecured 30,000
Trustee’s fees and other costs of liquidation 16,000
Mortgage payable, secured by property that was sold for P80,000 60,000
Note payable to bank, secured by all accounts receivable of which
P30,000 were collected and P10,000 were written off as uncollectible 30,000
How much will the bank receive on the note payable?
21. Ingham Corporation is being liquidated. The trustee has determined that the unsecured
claims will receive P.30 on the peso. Platinum Corporation holds a P35,000 mortgage note
receivable from Ingham that is secured by equipment with a P17,500 book value and a
P7,000 fair value.
How much of the mortgage receivable will be recovered by Platinum?
22. Kresta Corporation is being liquidated. The trustee has determined that the unsecured
claims will receiveP.25 on the peso. Loanstar Corporation holds an P80,000 mortgage note
receivable from Kresta that is secured by marketable securities with an P88,000 book value
and a P60,000 fair value. How much of the mortgage receivable will Loanstar recover?
Use the following information for questions 23 to 25:
Rockee Corporation, a bio-tech firm, has found itself in financial difficulty and may file for
bankruptcy. Rockee's Statement of Affairs reflects the following summary information:
Book value of assets P700,000
Net realizable value of assets 370,000
Total liabilities 400,000
Secured claims 250,000
Unsecured claims 30,000
23. Estimated deficiency to unsecured creditors.
24. Dividend to unsecured creditors without priority.
25. Rockee owes Flint Corporation P9,000 secured by inventory that is expected to realize
P7,000. How much can Flint expect to receive on this claim?
Use the following information for questions 26 to 35:
The following post-closing trial balance has been prepared for Harper Corporation as of
September 30, 20x4:
Cash-overdraft P 18,000
Notes receivable P 6,000
Accrued interest receivable 900
Accounts receivable 66,000
Allowance for uncollectible accounts 9,000
Inventories 90,000
Land 54,000
Plant and equipment 321,000
Accumulated depreciation 201,000
Notes payable 105,000
Accrued interest payable 6,000
Accounts payable 126,000
Accrued salaries payable 24,900
Common stock (P10 par) 240,000
Premium on common stock 27,000
Retained earnings (deficit) __219,000 _________
P 756,900 P756,900

Notes receivable and accrued interest on these notes are expected to realize their book values.
Accounts receivable are expected to realize P45,000. The accounts receivable have been
pledged to secure a note payable for P30,000 and accrued interest expense of
P2,400.Inventories will realize approximately 60% of their book value. A real estate agent believes
that the land and building and equipment could be sold for P150,000. The holder of a note
payable of P69,000, with accrued interest thereon of P3,600, has a lien against the property for
the full amount due. All salaries qualify for priority. Accountant's fee will be P2,000.
26. Compute the estimated amount available to unsecured creditors (with and without priority)/
total free assets:
27. Compute the estimated amount available to unsecured creditors without priority (net free
assets);
28. Compute the amount of unsecured creditors without priority
29. Compute the dividend to unsecured creditors without priority
30. Compute the estimated payment to fully secured creditors
31. Compute the estimated amount to partially secured creditors
32. Compute the estimated amount to unsecured creditors with priority
33. Compute the estimated amount to unsecured creditors without priority
34. Compute the estimated payment to creditors
35. Computed the estimated deficiency to unsecured creditors
36. Put the following classes in the order allowed by the law, starting with the highest priority to
the lowest:
1) Expenses to administer estate
2) Tax claims of governmental units
3) Wages
4) Deposits for goods or services never received from the debtor
a. 1,3,4,2 c. 4,2,1,3
b. 3,1,2,4 d. 2,1,3,4