[CORPORATION LIQUIDATION]

SOLUTIONS TO MULTIPLE CHOICE PROBLEMS

PROBLEM 1

**********TO FOLLOW THE SOLUTION**********

PROBLEM 2

**********TO FOLLOW THE SOLUTION**********

PROBLEM 3

Amount realized secured by inventory …………………………………………………… P 30,000

Unsecured claim (P 10,000 x 25%) ………………………………………………………. 2,500
Total amount received P  32,500 (C)

PROBLEM 4

(P 15,000,000 + P200,000) = P 15,200,000 (D)

PROBLEM 5

Free assets:
Other assets ……………………………………………………………………... P 80,000
Excess from assets pledged with secured
Creditors (P 116,000 – P 70,000) ………………………………………. 46,000
Total P 126,000

Liabilities with priority …………………………………………………………. P  42,000

Free assets after payment of liabilities with priority
(P 126,000 – P 42,000) ………………………………………………… P  84,000
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P 130,000 – P 50,000) ………………………………. P  80,000
Unsecured creditors …………………………………………………… 200,000
Total P 280,000

Recovery percentage: P 84,000 ÷ P 280,000 = 30%

Payment of partially secured debt:

Value of pledged assets ………………………………………………. P 50,000
30% of remaining P 80,000 …………………………………………... 24,000
Total collected P  74,000 (C)

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PROBLEM 6

Estate equity, beg. (P 100,000 – P 85,000) ………………………………………………. P 15,000

Loss on realization (P 100,000 – P 75,000) ………………………………………………. (25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 …………………………………………….. (4,250)
Estate deficit P (14,250) (A)

Total assets at net realizable value ………………………………………………………… P 75,000

Fully secured liabilities …………………………………………………………………… (40,000)
Estimated administrative expense ………………………………………………………… (4,000)
Estimated amount available ………………………………………………………………. P 31,000
Unsecured claims (P 45,000 + P 250) ……………………………………………………. (45,250)
Estimated deficiency to unsecured creditors P  14,250 (C)

PROBLEM 7

Unsecured creditors without priority …………………………………………………….. P 1,102,500

Estimated deficiency to unsecured creditors:
Loss on realization ………………………………… 551,250
Estimated liquidation expenses …………………… 55,125
Total ………………………………………………. 606,375
Stockholders’ equity ……………………………… 441,000 165,375
Net free assets …………………………………………………………………………… 937,125
Liabilities with priority …………………………………………………………………. 122,500
Free assets P 1,059,625(A)

PROBLEM 8

Machinery ………………………………………………………………………………. P 10,000

Recoveries of unsecured claims (50,000 - 10,000) × .50 ………………………………. 20,000
Amount to be realized P  30,000 (B)

PROBLEM 9

9-1: a - P 7,000

9-2: a - P 30,000

9-3: b - P 57,200 [52,000 + (8,000 × .65)]

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PROBLEM 10

Notes Payable …………………………………………………………………………….. P 23,940

Less: Inventories …………………………………………………………………………. 19,200
Unsecured Liabilities …………………………………………………………………….. 4,740
% of recovery …………………………………………………………………………….. 78%
Recovery …………………………………………………………………………………. 3,697
Add: Inventories …………………………………………………………………………. 19,200
Amount to be received by Wood P  22,897 (B)

PROBLEM 11

Notes payable (175,000 – 140,000) ……………………………………………………… P 35,000

Unsecured liabilities (420,000 – 52,500) ………………………………………………… 367,500
Total ……………………………………………………………………………………... 402,500
Free assets (157,500 + 210,000) ………………………………………………………… 367,500
Estimated deficiency 35,000 (B)

PROBLEM 12

Statement of Realization and Liquidation Credits:

Assets realized …………………………………………………………………. P 420,000

Assets not realized ……………………………………………………………... 150,000
Liabilities to be liquidated …………………………………………………….. 540,000
Liabilities assumed ……………………………………………………………. 180,000
Supplemental credits …………………………………………………………… 510,000
Total credits P 1,800,000

Statement of Realization and Liquidation Debits:

Assets to be realized …………………………………………………………... P 330,000

Assets acquired ………………………………………………………………... 360,000
Liabilities liquidated …………………………………………………………... 360,000
Liabilities not liquidated ………………………………………………………. 450,000
Supplementary charge ………………………………………………………… 468,000
Total debits P 1,968,000

Net Income (Loss) ……………………………………………………………………… P (168,000) B

The solution simply utilizes the basic accounting equation of Assets = Liabilities + Stockholders’ Equity (SHE),
thus:

Common stock ……………………………………………………………….. P 300,000

Retained earnings …………………………………………………………….. 120,000
Stockholders’ Equity ………………………………………………………… P 420,000
Add: Liabilities not liquidated ……………………………………………….. 450,000
Total liabilities and SHE …………………………………………………….. P 870,000
Less: Assets not realized (or end) …………………………………………… 150,000
Cash balance, ending P 720,000 (A)

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PROBLEM 13

Since the P Corporation expect to recover P .30 for every P 1 liability. Therefore, the unsecured liability of S
Company that would be paid were as follows:

Unsecured loan …………………………………………………………………….. P 200,000

Multiplied by: Expected recovery per peso of unsecured creditors ……………… 30%
P 60,000 (B)

PROBLEM 14

Estimated losses on realization of assets ……………………………………………………. P 2,000,000

Less: Estimated gains on realization of assets …………………. P 1,440,000
Additional assets * ………………………………………… 1,280,000 2,720,000
Estimated net (gain) or loss in assets realization ……………………………………………. P (720,000)
Add: Additional liabilities** ………………………………………………………………... 960,000
Estimated net (gain) or loss …………………………………………………………………. P 240,000
Less: Stockholders’ equity:
Capital stock ………………………………………….. P 2,000,000
Deficit ………………………………………………… 1,200,000 800,000
Estimated amount to be recovered by stockholders ……………………………………….. P 560,000

Therefore, the pro-rate payment on the peso is:

Estimated amount to be recovered by stockholders P 560,000

--------------------------------------------------------------- = -------------- = P .70 (D)
Stockholders’ Equity P 800,000

*additional assets are assets completely written-off in the books in the past year but subsequently have a realizable
value.

**additional liabilities, are liabilities in addition to the recorded liabilities in the balance sheet. In other words, they
are unrecorded liabilities and expenses. Examples are liquidation expenses such as administrative and trustee fees,
liability on damage suits, acquired interest on mortgage payable, unbilled creditor’s fee and the like.

PROBLEM 15

Estimated net gain (loss) on realization:

Gain on realization ………………………………… 78,750
Loss on realization ………………………………… (336,700) (257,950)
Estimated claims …………………………………………………………………….. (43,750)
Total …………………………………………………………………………………. (301,700)
Stockholders’ equity ………………………………………………………………… 295,750
Estimated deficiency P( 5,950) (A)

PROBLEM 16

Amount realized secured by inventory ……………………………………………… P 120,000

Unsecured claim (P 88,000 x 75%) …………………………………………………. 66,000
Total amount received P 186,000 (D)

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PROBLEM 17

Car – Cadillac, at net realizable value ……………………………………………… P 4,000,000

Add: Portion of free assets used to pay unsecured amount:
(P 6,000,000 – 4,000,000 ) × 50% ……………………………………… 1,000,000
P 5,000,000 (B)

PROBLEM 18

Assets pledged with fully secured creditors ……………………………………….P 185,000

Fully secured creditors ……………………………………………………………. 130,000 55,000
Free assets ………………………………………………………………………… 160,000
Total free assets …………………………………………………………………... 215,000
Less: Liabilities with priority …………………………………………………….. 35,000
Available to unsecured non-priority claims P 180,000 (B)

PROBLEM 19

Asset at liquidation value ……………………………………………………….. P 5,000

Add: Portion free assets used to pay the unsecured amount: (P 30,000 – P 5,000) x .40 10,000
P 15,000(C)

PROBLEM 20

Free assets:
Current assets …………………………………………………………………… P  33,000
Buildings and equipment ………………………………………………………. 110,000
Total P 143,000

Liabilities with priority:

Administrative expenses ……………………………………………………….. P  20,000
Salary payable …………………………………………………………………. 6,000
Income taxes …………………………………………………………………… 8,000
Total P  34,000

Free assets after payment of liabilities with priority:

(P 143,000 – P 34,000) ……………………………………………………….. P 109,000
Unsecured liabilities
Notes payable ………………………………………………………………… P  30,000
Accounts payable ……………………………………………………………. 83,000
Bonds payable ……………………………………………………………….. 70,000
Total P 183,000

Percentage of Unsecured liabilities to be paid: P 109,000 ÷ P 183,000 = 60%

Payment of notes payable:

Value of security (land) …………………………………………………….. P  90,000
60% of remaining P 30,000 ………………………………………………… 18,000
Total collected P 108,000 (A)

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