ILLUSTRATION 15-1: STATEMENT OF AFFAIRS

Goes Out Company, which filed a voluntary bankruptcy petitiion on August 1, 20x4, had the following infor
follows:
1. Receivables. The notes and accounts receivable are considered to have been adequately provid
expects to realize the amounts shown.
2. Finished goods. The finished goods can be sold for P12,000; however, the company expects to in
3. Work in process. The work in process can be completed if P500 of direct costs are incurred for la
P17,000; however, the company expects to incur P1,500 of direct selling and shipping costs.
4. Raw materials. The raw materials can be converted into finished goods if P1,200 of direct costs
be sold for P9,000; however, the company expects to incur P1,800 of direct selling and shipping
5. Supplies. The supplies will be substantially consumed in the completion of work in process and t
estimated realizable value of the remaining supplies after completion and conversion is P500.
6. Prepayments. The prepayments are expected to expire the liquidation period.
7. Land. The land has a current market value of P37,500.
8. Building. The building has a current market value of P57,500.
9. Equipment. The equipment can be sold at auction for an estimated P14,000.
10. Patents completely written-off the books in past years but with a realizable value of P10,375.
11. The books do not show accrued employee benefits amounting to P3,000. Liquidation expenses.
fees, appraisal fees, and legal and accounting fees will be incurred in connection with the liquida
12.
Accounts payable. Accounts payable include P3,000 to the company's attorney for legal work in
efforts on certain accounts receivable that have been written off. Accounts payable also include
accountants in connection with the December 31, 20x3 audit of the company's financial statem

The balance sheetof Goes Out Company is presented as follows:

Goes Out Company

Balance Sheet
August 1, 20x4
ASSETS LIABILITIES AND STOCKHOLDER'S E
Current Assets Current Liabilities
Cash…………………………………………………………………….. P 1,000 Notes Payable to Bank, secur
Notes Receivable………………………………………………. 2,500 Accounts Payable…………………
Accounts Receivable, net……………………………………… 12,500 Accrued Payable
Inventory Interest (P1,000 to bank, P
Finished Goods……………………………………………… 20,000 Salaries and Wages…………
Work in Process……………………………………………. 25,000 Payroll Taxes……………………
Raw materials……………………………………………… 10,000 Total Current Assets…………
Supplies…………………………………………………………….. 2,500 Non-current Liabilities
Prepayments………………………………………………………… 4,000 Notes Payable to Insurance C
Total Current Assets……………………………………… P 77,500 Total Liabilities………………………………
Non-Current Assets Stockholder's Deficiency
Land……………………………………………………………………… P 35,000 Common Stock…………………………
Building, Net………………………………………………………… 55,000 Deficit………………………………………
Equipment, Net……………………………………………………. 30,000 Total Stockholder's Deficienc
Goodwill…………………………………………………………….. 7,500
Total Non-Current Assets…………………………………. 127,500
Total Assets…………………………………………………………………… P 205,000 Total Liabilities and Stockholders' D

REQUIRED:
1. Prepare the statement of affairs of the company
2. Identify the estimated amounts to be recovered by each class of creditors
3. Prepare the statement of deficiency of the company

SOLUTION:

Asset Amount Liabilities

1. Cash 1,000.00 None
2. Notes Receivable 2,500.00 None
3. Notes payable - Bank
Accounts Receivable 12,500.00
Interest payable - Bank
4. Finished Goods 11,000.00 None
5. WIP 15,000.00 None
6. Raw materials 6,000.00 None
7. Supplies 500.00 None
8. Prepayments - None
9. Land 37,500.00 Notes payable - Insurance
Building, Net 57,500.00 Interest payable - Insurance
10. Patent 10,375.00 None
11. Equipment 14,000.00 None
12. Goodwill - None
13. None - Accounts Payable
167,875.00
14. Salaries and Wages
Payroll Taxes
Accrued benefits
Liquidation Expense
Net Free Assets
Net Deficiency

Goes Out Company

Statement of Affairs
August 1, 20x4

Assets' Book
Value Assets
Assets Pledge to Fully Secured Creditors:
35,000.00 Land……………………………………………………………………………………………………………………
 55,000.00 Building………………………………………………………………………………………………………………
Total…………………………………………………………………………………………………………………
Less: Liabilities to Fully Secured Creditors
Notes payable to Insurance………………………………………………………………………………
Interest payable to Insurance……………………………………………………………………………
Total…………………………………………………………………………………………………………………
Assets Pledge to Partially Secured Creditors:
12,500.00 Accounts Receivable…………………………………………………………………………………………
Free Assets:
1,000.00 Cash……………………………………………………………………………………………………………………
2,500.00 Notes Receivable………………………………………………………………………………………………
20,000.00 Finished Goods…………………………………………………………………………………………………
25,000.00 Work In Process…………………………………………………………………………………………………
10,000.00 Raw materials……………………………………………………………………………………………………
2,500.00 Supplies………………………………………………………………………………………………………………
4,000.00 Prepayments………………………………………………………………………………………………………
30,000.00 Equipment…………………………………………………………………………………………………………
7,500.00 Goodwill……………………………………………………………………………………………………………
- Patent…………………………………………………………………………………………………………………
Total Free Assets/ Total estimated amount available……………………………………………
Less: Unsecured Liabilities with priority…………………………………………………………………
Net Free Assets/ Total amount available for unsecured liabilities without priority…
Estimated Deficiency to unsecured Creditors…………………………………………………………
205,000.00 Total………………………………………………………………………………………………………………………

Book Value Liabilities and Equity

Fully Secured Creditors:
87,500.00 Notes payable to Insurance………………………………………………………………………………
3,000.00 Interest payable to insurance……………………………………………………………………………
Total…………………………………………………………………………………………………………………
Partially Secured Creditors:
17,500.00 Notes payable to bank………………………………………………………………………………………
1,000.00 Interest payable to bank……………………………………………………………………………………
Total…………………………………………………………………………………………………………………
Less: Value of Pledge Assets
Accounts Receivable…………………………………………………………………………………………
Unsecured Creditors with Priority:
3,500.00 Salaries and Wages……………………………………………………………………………………………
1,000.00 Payroll Taxes……………………………………………………………………………………………………
Accrued Employee benefits………………………………………………………………………………
Estimated liquidation expense…………………………………………………………………………
Total Unsecured Creditors with Priority…………………………………………………………………
Unsecured Creditors without Priority:
46,500.00 Accounts Payable………………………………………………………………………………………………
45,000.00 Stockholder's Equity………………………………………………………………………………………………
205,000.00 Total Unsecured Creditors without Priority……………………………………………………………
 Goes Out Company
Estimated Amounts to be Recovered by Creditors
August 1, 20x4

Categories of Creditors
Fully Secured Creditors
Partially Secured Creditors
Unsecured Creditors with Priority
Unsecured Creditors without Priority
Total

Goes Out Company

Statement of Deficiency
August 1, 20x4
Estimated Loss on Realization of Assets:
Finished Goods………………………………………
Work In Process………………………………………
Raw materials…………………………………………
Supplies………………………………………………………
Prepayments………………………………………………
Equipment…………………………………………………
Goodwill……………………………………………………
Additional Liabilities
Accrued Employee benefits…………………
Estimated liquidation expense……………
Estimated Gross Loss………………………………….
Less: Estimated Gain on Realization of Assets:
Land……………………………………………………………
Building……………………………………………………
Additional Assets
Patent…………………………………………………………
Estimated net Loss……………………………………….
Less: Loss to be absorbed by stockholders
Common Stock………………………………………………
Deficit…………………………………………………………
Estimated Deficiency to unsecured creditors
1, 20x4, had the following information regarding liquidation and realizations are as

o have been adequately provided for in preparing the balance sheet; thus the company

ever, the company expects to incur P1,000 of direct selling and shipping cost.
f direct costs are incurred for labor. On completion, this inventory can be sold for
t selling and shipping costs.
goods if P1,200 of direct costs are incurred for labor. On completion, this inventory can
0 of direct selling and shipping costs.
pletion of work in process and the conversion of raw materials into finished goods. The
etion and conversion is P500.
ation period.

ed P14,000.
realizable value of P10,375.
P3,000. Liquidation expenses. The company estimates that P7,500 in court and filing
d in connection with the liquidation.

any's attorney for legal work incurred in connection with patent research and collection
Accounts payable also include P2,500 owed to the company's certified public
he company's financial statements.

s Out Company
alance Sheet
ugust 1, 20x4
ILITIES AND STOCKHOLDER'S EQUITY
urrent Liabilities
Notes Payable to Bank, secured by Accounts Receivable…………………………… P 17,500
Accounts Payable………………………………………………………………………………………. 46,500
Accrued Payable
Interest (P1,000 to bank, P3,000 to insurance company)………………… 4,000
Salaries and Wages………………………………………………………………………. 3,500
Payroll Taxes…………………………………………………………………………………….. 1,000
Total Current Assets……………………………………………………………………………… P 72,500
Non-current Liabilities
Notes Payable to Insurance Company, secured by Land and Building 87,500
l Liabilities……………………………………………………………………………………………… P 160,000
kholder's Deficiency
ommon Stock………………………………………………………………………………………….. P 50,000
Deficit…………………………………………………………………………………………………………. (5,000)
Total Stockholder's Deficiency…………………………………………………………………. P 45,000
 l Liabilities and Stockholders' Deficiency………………………………………………….. P 205,000

Amount Free Assets Deficiency Remarks

- 1,000.00 Free Assets
- 2,500.00 Free Assets
17,500.00 Partially Secured
6,000.00
1,000.00 Partially Secured
- 11,000.00 Free Assets
- 15,000.00 Free Assets
- 6,000.00 Free Assets
- 500.00 Free Assets
- - Write-off
87,500.00 Fully Secured
4,500.00
3,000.00 Fully Secured
- 10,375.00 Free Assets
- 14,000.00 Free Assets
- - Write-off
46,500.00 46,500.00 Unsecured W/out Priority
155,500.00 64,875.00 52,500.00
(3,500.00) Unsecured W/ Priority
(1,000.00) Unsecured W/ Priority
(3,000.00) Unsecured W/ Priority
(7,500.00) Unsecured W/ Priority
49,875.00 52,500.00
2,625.00

s Out Company
ment of Affairs
ugust 1, 20x4

Estimated
Estimated Amount
Realizable Available/ Free
Value Assets

……………………………………………………………………… 37,500.00
……………………………………………………………………… 57,500.00
……………………………………………………………………… 95,000.00

……………………………………………………………… 87,500.00
……………………………………………………………… 3,000.00
……………………………………………………………………… 90,500.00 4,500.00

………………………………………………………………… 12,500.00 -

……………………………………………………………………… 1,000.00
………………………………………………………………… 2,500.00
…………………………………………………………………… 11,000.00
…………………………………………………………………… 15,000.00
…………………………………………………………………… 6,000.00
…………………………………………………………………… 500.00
…………………………………………………………………… -
……………………………………………………………………… 14,000.00
……………………………………………………………………… -
…………………………………………………………………… 10,375.00 60,375.00
ble………………………………………………………… 64,875.00
…………………………………………………………….. (15,000.00)
ured liabilities without priority…………….. 49,875.00
……………………………………………………………. 2,625.00
…………………………………………………………….. 52,500.00

Creditor's
d Equity Claim Deficiency

……………………………………………………………………… 87,500.00
……………………………………………………………………… 3,000.00
……………………………………………………………………… 90,500.00 -

………………………………………………………………. 17,500.00
…………………………………………………………………. 1,000.00
……………………………………………………………………… 18,500.00

……………………………………………………………….. 12,500.00 6,000.00

……………………………………………………………… 3,500.00
………………………………………………………………. 1,000.00
……………………………………………………………………… 3,000.00
…………………………………………………………………… 7,500.00
………………………………………………………………… 15,000.00 -

……………………………………………………………… 46,500.00 46,500.00

…………………………………………………………….
……………………………………………………………. 52,500.00
s Out Company
to be Recovered by Creditors
ugust 1, 20x4

Estimated
Amount of Payment/ Percentage of
Claims Recovery Recovery
90,500.00 90,500.00 100%
18,500.00 18,200.00 98%
15,000.00 15,000.00 100%
46,500.00 44,175.00 95%
170,500.00 167,875.00

Out Company
ent of Deficiency
gust 1, 20x4

9,000.00
10,000.00
4,000.00
2,000.00
4,000.00
16,000.00
7,500.00 52,500.00

3,000.00
7,500.00 10,500.00
63,000.00

2,500.00
2,500.00

10,375.00 15,375.00
47,625.00

50,000.00
(5,000.00) 45,000.00
2,625.00
ILLUSTRATION 15-2: STATEMENT OF REALIZATION AND LIQUIDATION
On August 1, 20x4, the following information was available from the statement of affairs of Goes Out Comp

Cash……………………………………………………………………………….. P 1,000
Notes Receivable………………………………………………………………. 2,500
Accounts Receivable, Net………………………………………………….. 12,500
Finished Goods…………………………………………………………………. 11,000
Work in process…………………………………………………………………. 15,000
Raw materials………………………………………………………………….. 6,000
Supplies………………………………………………………………………………… 500
Land……………………………………………………………………………………… 37,500
Building, net………………………………………………………………………… 57,500
Equipment……………………………………………………………………………. 14,000
Patent……………………………………………………………………………. 10,375

For the next four months, the following transactions occur:

1. The following inventories were sold; finished goods at P20,000; work-in-process at P18,000, a
2. Supplies were sold at P100.
3. Equipments were disposed at P8,300.
4. Payment of accrued employee benefits of P2,500.
5. Estimated liquidation expenses of P7,500 were paid.
6. Other expenses in relation to liquidation were paid amounting to P800.
7. Payment of accounts payable amounting to P10,000 as full settlement for the book value of P
8. Partial payment of notes payable - bank amounting to P6,000 principal and P1,000 interest.
9. Salaries and wages paid, P3,500.
10. Partial payment of notes payable - insurance company amounting to P7,500 principal and P3,0
11. Furniture and Fixture acquired amounting to P10,000.

REQUIRED:
Prepare the Statement of realization and liquidation for the four month period using:
a. Bankruptcy Court Form
b. Traditional Balance sheet (Account Form)

SOLUTION:
CASE 1

Goes Out Company

Statement of Realization and Liquidation
For the Four months ended, November 30, 20x4
Estate deficit, Aug. 1, 20x4
Assets Realized:

Finished Goods
 Work in Process
Raw Materials
Supplies
Equipment
Totals
Liquidated:
Liabilities:
Accrued Employee benefits
Salaries and Wages
Estimated Liquidation Expenses
Accounts Payable
Notes Payable to bank
Notes Payable to insurance
Totals
Expenses:
Other Liquidation Expenses
Estate Deficit, November 30, 20x4

CASE 2

Goes Out Company

Statement of Realization and Liquidation
For the Four months ended, November 30, 20x4
Assets to be Realized:
Notes receivable 2,500.00
Accounts Receivable, net 12,500.00
Finished goods 11,000.00
Work-in-process 15,000.00
Raw materials 6,000.00
Supplies 500.00
Land 37,500.00
Building, net 57,500.00
Equipment 14,000.00
Patents 10,375.00 166,875.00

Assets Acquired:
Furniture and Fixtures 10,000.00 10,000.00

Liabilities Liquidated:
Accrued Employee benefits 2,500.00
Estimated Liquidation expense 7,500.00
Acconts Payable 10,000.00
Salaries and Wages 3,500.00
Notes Payable to bank 7,000.00
Notes payable to Insurance 10,500.00 41,000.00
Liabilities Not Liquidated
Accounts Payable 40,200.00
Notes payable to bank 11,500.00
Notes payable to insurance 80,000.00
Accrued Employee benefits 500.00
Payroll taxes 1,000.00 133,200.00

Supplementary Debits
Other Liquidation Expenses 800.00 800.00

Sub-total 351,875.00

Total 351,875.00
 of affairs of Goes Out Company:

Notes Payable to Bank……………………………………………………… 17,500

Interest Payable to bank………………………………………………… 1,000
Accounts Payable………………………………………………………………… 46,500
Salaries and Wages……………………………………………………………… 3,500
Payroll Taxes………………………………………………………………………… 1,000
Notes Payable to insurance Company………………………… 87,500
Interest Payable to insurance Company…………………… 3,000
Accrued employee Benefits……………………………………………… 3,000
Estimated Liquidation Expenses…………………………………… 7,500
Estate Deficit………………………………………………………………………… (2,625)

ork-in-process at P18,000, and raw materials at P4,500.

ment for the book value of P6,300 and the balance remains unpaid.
cipal and P1,000 interest.

to P7,500 principal and P3,000 interest.

ut Company
zation and Liquidation
nded, November 30, 20x4
2,625.00

Realization Current Fair

Proceeds Value Loss or (gain)
20,000.00 11,000.00 (9,000.00)
 18,000.00 15,000.00 (3,000.00)
4,500.00 6,000.00 1,500.00
100.00 500.00 400.00
8,300.00 14,000.00 5,700.00
50,900.00 46,500.00 (4,400.00)

Payment Book Value Loss or (gain)

2,500.00
3,500.00
7,500.00
10,000.00 6,300.00 3,700.00
7,000.00
10,500.00
41,000.00

800 4,500.00
2,725.00

ut Company
ization and Liquidation
ended, November 30, 20x4
Assets Realized:
Finished goods 20,000.00
Work-in-process 18,000.00
Raw materials 4,500.00
Supplies 100.00
Equipment 8,300.00 50,900.00

Assets Not Realized:

Notes receivable 2,500.00
Accounts Receivable, net 12,500.00
Land 37,500.00
Building, net 57,500.00
Patent 10,375.00
Furniture and Fixtures 10,000.00 130,375.00

Liabilities to be Liquidated
Notes Payable to bank 17,500.00
Interest payable to bank 1,000.00
Acconts Payable 46,500.00
Salaries and Wages 3,500.00
Payroll taxes 1,000.00
Notes payable to insurance 87,500.00
Interest payable to insuranc 3,000.00
Accrued Employee benefits 3,000.00
Estimated Liquidation expen 7,500.00 170,500.00

Liabilities Assumed:
- -

Supplementary Credits:
- -

Sub-total 351,775.00
Net Loss 100.00
Total 351,875.00