Chapter 6

Problem I1. Statement of Affairs - Formal

MINER COMPANYStatement of Affairs

May 31, 2012Book Value

AssetsRealizable

ValueAssets Pledged with Fully Secured Creditors:

P 50,000 Notes Receivable P39,8001,200 Accrued Interest Rec. 1,000 P 40,800

Notes Payable 40,000 Accrued Interest Pay. 800 40,800

119,000 Building 75,000Note Payable 20,000Accrued Interest Pay. 800 20,800 P 54,200

Assets Pledged with Partially Secured Creditors:13,200 Equipment 4,200

Note Payable 10,000

Free Assets6,000 Cash 6,000

61,000 Accounts Receivable 50,00060,000 Inventory 30,000

1,100 Prepaid Insurance 4008,500 Goodwill 0

Total Net Realizable Value 140,600 Liabilities having Priority – Wages 6,000

Taxes 2,400 8,400Net Free Assets 132,200

Estimated Deficiency to Unsecured Creditors 53,600P 320,000 P 185,800

Book Value Equities

Unsecured

Liabilities Having Priority:P 6,000 Accrued Wages P 6,000

2,400 Taxes Payable 2,400 P 8,400

Fully Secured Creditors:60,000 Notes Payable 60,000

1,600 Accrued Interest Payable 1,600 61,600

Partially Secured Creditors:10,000 Note Payable 10,000

Equipment 4,200 P 5,800

Unsecured Creditors:170,000 Accounts Payable 170,000

10,000 Notes Payable 10,000

Stockholders’ Equity110,000 Common Stock

( 50,000) Retained Earnings (Deficit)

P 320,000 P 185,800

2. Deficiency Statement to determine estimated deficiency to unsecured creditors:

Deficiency AccountMay 31, 2012

Estimated Losses: Estimated Gains: Accounts Receivable P 11,000 Common Stock P

110,000 Notes Receivable 10,400 Retained Earnings (50,000) Inventory 30,000 Estimated Deficiency to Buildings 44,000 Unsecured Creditors 53,60

0 Equipment 9,000 Prepaid Insurance 700 Goodwill 8,500

P113,600 P 113,600 Estimated final dividend rate to unsecured creditors is: P132,200/P185,800 = 71.15%

Problem II 1. Formal

Down Dog CorporationStatement of Affairs

June 30, 2014

DeficiencyAccount

Book Value Assets Realizable Value (Loss/Gain)Pledged with partially secured creditors

P165,000 Equipment-net P87,000 (78,000)Less: Note payable and accrued interest (96,000 ) P 0Unsecured amount (See below) (9,000)

Free Assets3,000 Cash 3,000

72,000 Accounts receivable-net 48,000 (24,000)60,000 Inventories 72,000 12,000

Total net realizable value 123,000Less: Priority liabilities – wages payable (45,000 ) Total available for unsecured creditors 78,000

______ Estimated deficiency to unsecured creditors 30,000 ______P300,000 P108,000 (90,000)

Unsecured Book Value Equities Liabilities

Priority liabilitiesP 45,000 Wages payable (assumed under

P4,650 per employee) P 45,000

Partially secured creditors96,000 Note payable and accrued interest P 96,000

Less: Equipment pledged as security (87,000 ) P 9,000

Unsecured creditors72,000 Accounts payable 72,00027,000 Rent payable 27,000

Stockholders’ equity180,000 Capital stock 180,000

(120,000 ) Retained earnings (deficit) ______ (120,000 ) P300,000 P108,000 P 60,000

Estimated Deficiency P(30,000 )

2. Estimated payments per dollar for unsecured creditors Cash available P210,000 Distribution to partially secured and unsecured priority creditors:

Note payable and interest P87,000Administrative expenses 24,000Wages payable 45,000 (156,000 ) Available to unsecured nonpriority creditors P 54,000

Note payable and interest (unsecured portion) P 9,000 Accounts payable 72,000 Rent payable 27,000

Unsecured nonpriority claims P108,000

(P54,000 / P108,000 = P0.50 per peso)

Expected recovery for each class of claimsPartially securedNote payable and interest

Secured portion P87,000Unsecured portion (P9,000 × 0.50) 4,500 P91,500

Unsecured priorityAdministrative expenses P24,000Wages payable 45,000 69,000

Unsecured nonpriorityAccounts payable (P72,000 × 0.50 P36,000Rent payable (P27,000 × 0.50) 13,500 49,500Total payments P210,000

Problem IIIRealizable value of all assets (P635,000 + P300,000 + P340,000)P1,275,000Allocated to:

Fully secured creditors (316,000)Partially secured creditors (300,000)

Unsecured creditors with priority (100,000)Remainder available to general unsecured creditors P559,000

Payment rate to general unsecured creditors (Including balance due to partially secured creditors) P559,000 / (P1,165,000 + (P400,000 - P300,000)) 44.2%

Realizable value of assets:Assets pledged to fully secured creditors P635,000Assets pledged to partially secured creditors 300,000Free assets 340,000 Total realizable value P1,275,000

Amounts to be paid to:Fully secured creditors P316,000Partially secured creditors [P300,000 + (0.442 × P100,000)] 344,200Unsecured creditors with priority 100,000General unsecured creditors (0.442 × P1,165,000) 514,800* Total P1,275,000

*Rounded P130

Problem IVFree Assets:

Current Assets ................................................................. P 35,000Buildings and Equipment ................................................. 110,000

Total ......................................................................... P145,000

Liabilities with Priority:Administrative Expenses .................................................. P 20,000Salaries Payable (only P3,000 per employee)................... 6,000Income Taxes ................................................................... 8,000

Total ......................................................................... P 34,000

Free Assets After Payment of Liabilities with Priority (P145,000 – P34,000) ...................................................... P111,000

Unsecured LiabilitiesNotes Payable (in excess of value of security) ................. P 30,000Accounts Payable ............................................................. 85,000Bonds Payable .................................................................. 70,000

Total ......................................................................... P185,000

Percentage of Unsecured Liabilities To Be Paid: P111,000/P185,000 = 60 %

Payment On Notes Payable:Value of Security (land) .................................................... P 90,00060% of Remaining P30,000 .............................................. 18,000Total Collected by holders ................................................ P108,000

Problem VFree Assets:

Cash ......................................................................... P30,000Receivables (30 percent collectible)................................. 15,000Inventory ......................................................................... 39,000

Land (value in excess of secured note:P120,000 – P110,000).................................................. 10,000Total ......................................................................... P94,000

Less: Liabilities with prioritySalary payable (below maximum)............................... (10,000)Free assets available................................................... P84,000

Unsecured Liabilities:Accounts payable.............................................................. P90,000Bonds payable (less secured interest in

building: P300,000 – P180,000)................................... 120,000Unsecured liabilities.................................................... P210,000

Percentage of unsecured liabilities to be paid: P84,000/P210,000 = 40%

Amounts to be paid for:Salary payable (liability with priority to be paid

in full) ......................................................................... P10,000Accounts payable (unsecured—will collect 40%

of debts of P90,000).................................................... P36,000Note payable (fully secured by land—will collect

entire balance)........................................................... P110,000Bonds payable (partially secured—will collect

P180,000 from building and 40 percent of the remaining P120,000)................................................... P228,000

Problem VI

Class of Creditors

Total Creditor’s

Claims

Total Amounts

Expected to be

Recovered

% of Total Claims

Expected to be

RecoveredFully secured liabilitiesPartially secured liabilitiesUnsecured liabilities with priorityUnsecured liabilities without priority

183,60054,60030,810

182,500

183,60051,72030,810

116,800

100.094.7

100.064.0

Problem VII1. Total estimated proceeds P910,000

Less asset proceeds claimed by secured creditors: Notes payable and interest (from proceeds of receivables and inventory) P150,000 Mortgage payable and interest (from proceeds of land and building) 320,000 470,000 Total available to unsecured claimants. P440,000 Less distributions to unsecured claims with priority: Wages payable P 10,000 Taxes payable 20,000 30,000 Amount available for unsecured claims P410,000

2. Unsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) P380,000

Accounts payable 260,000Total claims ofunsecured creditors P640,000Dividend to Unsecured Creditors P410,000 ÷ P640,000 = 64.1%

3. Unsecured portion of notes payable and Interest P380,000 Dividend on unsecured amount 64.1 % Amount received on unsecured portion P243,580 Proceeds from receivables and inventory 150,000 Total Received P393,580

Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

Problem VIII1.

WILBUR CORPORATIONSTATEMENT OF AFFAIRS

DECEMBER 31, 20x4Assets

Book Value

Estimated Current Values

Estimated Amount

Available to Unsecured

Claims

Estimated Gain

(Loss) on Realizatio

n(1) Assets pledged with fully secured creditors:

P 40,000 Accounts receivable (net) P 40,000 Less: 10% note payable and

interest 38,500 P 1,500

50,000 Land P 65,000 P 15,000 110,000 Plant and equipment (net) 100,000 (10,000)

P165,000 Less: Mortgages payable and interest (157,500) 7,500

(2) Assets pledged with partially secured creditors:

20,000 Marketable securities P 16,000 (4,000) Less: 10% note payable and interest (20,800)

35,000 Inventory P 32,000 (3,000) Less: Accounts payable (60,000)

(3) Free assets: 4,000 Cash P 4,000 4,000 35,000 Accounts receivable (net) 35,000 35,000 55,000 Inventory 50,000 50,000 (5,000)

6,000 Prepaid insurance 1,000 1,000 (5,000) 140,000 Plant and equipment (net) 60,000 60,000 (80,000)

48,000 Franchises 15,000 15,000 (33,000)

Estimated amount available P 174,000Less: Creditors with priority (43,000)Net available to unsecured creditors P 131,000Estimated deficiency 45,000

P 543,000 (P 125,000)

Total unsecured debt P 176,000 2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43%

Problem IX

Smith CompanyStatement of Realization and Liquidation

AssetsAssets to be realized Assets Realized

Old Receivebles, net P 50,000

Old Receivbles P 28,000

Marketable Securities 20,000

New Receivbles 65,000

Old Inventory 72,000

Marketable Securities 15,000

Depreciable Assets, net 120,000

Sales of Inventory 100,000

Assets Acquired Assets Not Realized

New Receivables 100,000

Old Receivables, net 22,000New Receivables, net 35,000Depreciable Assets 96,000

Supplementary ItemsSupplementary Charges Supplementary Credits

Old Current Payables P 31,000

Net Loss P 7,000

LiabilitiesLiabilities Liquidated Liabilities to be Liquidated

Old Current Payables P 31,000

Old Current Payables P 65,000

Liabilities Not Liquidated Liabilities Incurred

Old Current Payables P 34,000

________

P433,000

P 433,000

Problem XMallory Corporation

Statement of Realization and LiquidationFor the Three Months Ended July 31, 20x5

AssetsAssets Cash Non-Cash

Beginning balances assigned 5/1/x5 P 4,000 P720,000 Cash Receipts: Collection of Accounts Receivable 60,000 (70,000) Sale of inventory 170,000 (200,000) Sale of land and building 20,000 (340,000) Sale of machinery 70,000 (100,000)Cash Disbursements: Payment of salaries payable (60,000) Partial payment of accounts pay. (170,000) Partial payment of bank loan (70,000)

Ending balance P24,000 P10,000

LiabilitiesUnsecured

Fully Partially With Without Owner'sAssets Secured Secured Priority Priority Equity

Beginning balances assigned 5/1/X5

P240,000

P270,000

P94,000 P 0 P120,000 Cash Receipts: Collection of Accounts Receivable

(10,000) Sale of inventory (30,000) Sale of land and building (240,00

0)(80,000)

Sale of machinery (30,000)Cash Disbursements: Payment of salaries payable (60,000

) Partial payment of accounts pay

(180,000)

10,000 Partial payment of bank loan ________ (90,000) ________ 20,000 ________Ending balance P

0 P P 0

P34,000 P30,000 P (30,000)

Multiple Choice Problems1. d – since there is parent and subsidiary relationship, any intercompany accounts are

eliminated from consolidated point of view.

2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000 – (P4,500 + P10,000) = P76,500 estimated amount available for unsecured, non-priority creditors; P76,500 P90,000 = 0.85]

3. c – it is a partially secured liability

4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000

5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000

6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000

7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000

8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000

9. d

10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000) = P93,000

12. c – P93,000/P121,000 = 77% rounded.

13. a Net Free Assets: (P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000 Total Unsecured Creditors without priority: (P400,000 – P300,000) + P600,000 = P700,000

14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000 + Liq. expenses P40,000 = P165,000.

15. c Statement of Realization and Liquidation

Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000 Assets Acquired……………….. 750,000 Assets Not Realized…………… 1,375,000 Liabilities Liquidated…………. 1,875,000 Liabilities to be Liquidated…. 2,250,000 Liabilities Not Liquidated……. 1,700,000 Liabilities Assumed………….. 1,625,000 Supplementary charges/ Supplementary credits……… 2,800,000 debits……………………… 3,125,000

P 8,825,000 P 9,250,000

Net Gain……………………….. P 425,000

16. No requirement

17. c Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000 +: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000 Total LSHE = Total Assets…………………………………………………………… P 2,700,000 -: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000 Cash balance, ending………………………………………………………………P1,325,000

18. P440,000 Total Free Assets:

Fully secured: Land and building: P650,000 – (P300,000 + P20,000) = P 330,000

Free assets:Cash 10,000 Equipment 100,000 P440,000

Or,Total estimated proceeds P910,000 Less asset proceeds claimed by secured creditors: Notes payable and interest (from proceeds of receivables and inventory) P150,000

Mortgage payable and interest (from proceeds of land and building) 320,000 470,000Total available to unsecured claimants/total free P440,000

19. P410,000Total available to unsecured claimants/total free P440,000 Less distributions to unsecured claims with priority: Wages payable P 10,000 Taxes payable 20,000 30,000 Amount available for unsecured claims/net free assets P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), orUnsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) P380,000 Accounts payable 260,000Total claims of unsecured creditors P640,000

21. 64.1%

Dividend to unsecured creditors P410,000 ÷ P640,000 = 64.1%

22. P320,000 = P300,000 + P20,000

23. P393,580Unsecured portion of notes payable and interest P380,000 Dividend on unsecured amount x 64.1% Amount received on unsecured portion P243,580 Proceeds from receivables and inventory 150,000 Total Received P393,580

Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

24. P30,00025. P166,666 = P260,000 x 64.126. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to

rounding-off)27. P230,000 Net free assets (No. 19) P410,000 Less: Unsecured creditors without priority (No. 20) 640,000

P230,00028. P340,000 = P910,000 – P1,250,000

29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)

30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is the formal presentation of statement of affairs

Estimated Estimated Amt Estimated

Net Realizable

Value

Avail for Unsecured

Creditors    

Gain or (Loss)on

Liquidation Book

Value AssetsAssets pledged with fully secured creditors:

98,500 Land and Bldg 92,800 22,200 (5,700)5,800 Investment in Calandir 15,000 4,625 9,200

Total 107,800 Assets pledged with partially secured creditors:

41,000 Inventory 20,000 (21,000)43,000 Equipment 8,000 (35,000)

Free Assets: 1,850 Cash 1,850 1,850 0 21,200 Accounts Rec 17,000 17,000 (4,200)15,000 Note Rec 15,000 15,000 0

Estimated Amount Avail for unsecured creditors with and without priority 60,675 Less unsecured creditors with priority (3,775)Estimated amounts for unsecured creditors without priority (Net Free Assets): Net Realizable Amount Avail 56,900

_______ Deficiency _______ 15,725 _______226,350 169,650 72,625 (56,700)

Estimated Estimated Unsecured Amount Book Liabilities Secured With Without

Value and Owners Equity Amount Priority Priority Fully Secured Creditors:

600 Accrued Mtg Interest 600 70,000 Mortgage Payable 70,000

375 Accrued N/P Interest 375 10,000 Note Payable 10,000

Total 80,975 Partially SecuredCreditors:

50,000 Accounts Payable 28,000 22,000 Unsecured Creditors withPriority:

3,775 Accrued Payroll 3,775 Unsecured creditors withoutPriority:

40,625 Accounts Payable 40,625 10,00

0 Other Accrued Liabilities _______ 10,000

185,375 Totals 108,975 3,775 72,625 40,975 Owner Equity226,350

31. P56,900 – refer to No. 30 for computation32. P72,625 – refer to No. for computation33. Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation34. P80,975 – refer to No. 30 for computation 35. P45,160 = P28,000 + (P22,000 x 78%)36. P3,77537. P39,487.50 = 78% x (P40,625 + P10,000)38. P169,397.50 No. 34……………..P 80.975 No. 35…………….. 45,160 No. 36…………….. 3,775

No. 37…………….. 39,487.50 P169,397.50 (discrepancy around P250 plus due to rounding-off)

39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity40. P56,700 – refer to No. 30 or P169,650 – P226,35041. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)42. P22,475

LiabilitiesUnsecured

Assets Fully Partial With Without Owners' Cash Noncash Secured Secured Priority Priority Equity

6/1/x5 Balances:1,850 224,500 80,975 50,000 3,775 50,625 40,975

Cash Receipts:Securities Sale

16,000 (5,800) 10,200

N/R Collected 15,000 (15,000) 0 Equipment Sale

7,000 (43,000) (36,000)

Inventory Sale

22,000 (41,000) (19,000)

Cash Disbursements:Bank Loan (10,375

)(10,375

)Part Pyt-A/P (29,00

0)---------- --------- (50,00

0)------- 21,000 ----------

6/30 Balance 22,475 119,700 70,600 0 3,775 71,625 (3,825)

43. P119,700 – refer to No. 4244. P70,600 – refer to No. 4245. None – refer to No. 4246. P3,775 – refer to No. 4247. P71,625 – refer to No. 4248. (P3,825) deficit – refer to No. 4249. P150,900

Book Value Assets

Estimated Net

Realizable Value

Estimated Amount

Available for

Unsecured Creditor

Estimated Gain or

(Loss) on Liquidation

Assets pledged with fully secured creditors: 57,000 Accounts receivable (net) 45,000 12,600 (12,000)174,000 Land, plant and equipment (net) 150,000 77,400 (24,000)

Total 195,000Free assets:

6,000 Notes receivable 6,000 6,000 0 900 Accrued interest receivable 900 900 0

90,000 Inventories (90,000 x 60%) 54,000 54,000 (36,000)Estimated amount available for

unsecured creditors with and without priority 150,900

Less unsecured creditors with priority (26,900)Estimated amounts for unsecured

creditors without priority:

Net realizable amount available 124,000 Deficiency 26,000

327,900 Totals 255,900 150,000 (72,000)

Estimated Secured Amount

Estimated Unsecured Amount

With PriorityWithout Priority

Book Value Liabilities and Owners' Equity

Fully secured creditors: 3,600 Accrued interest 3,60069,000 Note payable 69,000

2,400 Accrued interest 2,40030,000 Note payable 30,000

Total 105,000Unsecured creditors with priority:

24,900 Wages payable 24,900

0 Administration fees – accountant’s fee 2,000Unsecured creditors without priority:

0 Accrued interest 018,000 Cash overdraft 18,000

6,000 Notes payable 6,000 126,000 Accounts payable -------- -------- 126,000

279,900 Totals 105,000 26,900 150,000 48,000 Owners' equity--see Note A327,900

Note A: Includes the effect of the P2,000 professional fee.

50. P124,000 – refer to No. 4951. P150,000– 52. 82.67% = P124,000/P150,00053. P105,00054. None55. P26,90056. P124,005 = P150,000 x 82.67%57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,00059. P72,000 – refer to No. 4960. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses

Quiz - VI1. P96,000

Claims of partially secured creditors.................................................. P 120,000Current value of assets pledged with these creditors............................ (80,000 )Deficiency that is unsecured.................................................................. P 40,000Claims of other unsecured creditors.................................................... 360,000   Total unsecured creditors claims....................................................... P 400,000

Amount available to unsecured creditors:  Excess left over after paying fully secured creditors    (P195,000 – P150,000)........................................................................ P 45,000  Current value of free assets (net of P45,000 to    creditors with priority)................................................................... 115,000   Amount available to unsecured creditors.......................................... P160,000

Settlement to unsecured claims per dollar (P160,000/P400,000).......... P   .40

Total distribution to partially secured creditors:  Current value of assets pledged.......................................................... P 80,000  Deficiency of P40,000 × P.40............................................................... 16,000

P 96,0002. P144,000 = P360,000 x 40%

3. P56,000Claims of partially secured creditors.................................................. P 90,000Current value of assets pledged with these creditors............................ (50,000 )Deficiency that is unsecured.................................................................. P 40,000Claims of other unsecured creditors.................................................... 200,000   Total unsecured creditors claims....................................................... P 240,000

Amount available to unsecured creditors:  Excess left over after paying fully secured creditors    (P300,000 – P250,000)........................................................................ P 50,000  Current value of free assets (net of P60,000 to    creditors with priority)................................................................... (14,000 )  Amount available to unsecured creditors.......................................... P 36,000

Settlement to unsecured claims per peso (P36,000/P240,000).............. P   .15

Total distribution to partially secured creditors:  Current value of assets pledged.......................................................... P 50,000  Deficiency of P40,000 × P.15............................................................... 6,000

P 56,0004. P30,000 = P200,000 x 15%5. P35,000 = P20,000 + (P70,000 – P20,000) x 30%

6. P96,000 = Free assets P220,000 - priority claims P100,000 = P120,000 P120,000/P300,000 unsecured = payment of 40% on unsecured peso 40% x P240,000 A/P = P96,000

7. P474,000 = Land and building sold for P450,000 leaves P60,000 unsecured still owing. 40% x P60,000 = P24,0008. P295,000 = P200,000 + P95,0009. P42,950 - (P10,950 + P2,000 + P20,000 + P10,000)10. P76,050 - Excess of salaries, P1,050 + notes pay in excess of security P25,000 +

accounts pay P50,00011. P163,800

Free assets:Other assets P104,000Excess from assets pledged with secured (P150,800 – P91,000) 59,800

P163,80012. P109,200

Total free assets P163,800

Less: Liabilities with priority 54,600P109,200

13. P364,000 Unsecured creditors:

Excess of partially secured liabilities over Pledged assets (P169,000 – P65,000) P104,000Unsecured creditors 260,000

P364,00014. P96,200

Payment of partially secured debt:Value of pledged assets P 65,00030%* of remaining P104,000 31,200

P 96,200*P109,200/P364,000 = 30%

15. P78,000Cash P 65,000Excess of pledged with secured liabilities

(P117,000 – P104,000) 13,000P 78,000

16. P52,000Free assets after of liabilities with priority:

Total free assets P 78,000Less: Liabilities with priority 26,000

P 52,00017. P260,000

Unsecured creditors:Excess of partially secured liabilities over pledged assets (P195,000 – P169,000) P 26,000Accounts payable 234,000

P 260,00018. P174,200

Payment on bond:Value of pledged assets P 169,00020%* of remaining P26,000 5,200

P 174,200Free after priority: P52,000/P260,000 = 20%

19. P247,000 Free assets P390,000Excess from assets pledged with fully secured

(P260,000 – P195,000) 65,000Amount available P455,000Unsecured liabilities with priority ( 208,000)Net free assets / available for unsecured P247,000

20. P32,000Cash 120,000Mortgage payable, paid in full ( 60,000 )

60,000Note payable to bank, secured portion ( 30,000 )

30,000Priority claims (P16,000 of administrative costs + P2,000 of customer deposits + P4,000 property tax) ( 22,000 )Available for unsecured nonpriority claims 8,000

Unsecured, nonpriority claims:Unsecured portion of note payable to bank 10,000Accounts payable 30,000Total unsecured, nonpriority claims 40,000

P8,000 cash/P40,000 claims = P.20 on the dollarAmount paid to bank:P30,000 for secured portion + (P10,000 x .20) for unsecured portion = 32,000

21. P15,400Mortgage note receivable 35,000Less: Portion secured by equipment ( 7,000 )Unsecured portion 28,000

Estimated recovery on secured portion 7,000Estimated recovery on unsecured portion (P28,000 x P.30) = 8,400Recovery on mortgage note receivable 15,400

22.Mortgage note receivable 80,000Less: Portion secured by marketable securities ( 60,000 )Unsecured portion 20,000

Estimated recovery on secured portion 60,000Estimated recovery on unsecured portion (20,000 x P.25) = 5,000Recovery on mortgage note receivable 65,000

23. P30,000Book value of assets P700,000Net realizable of assets 370,000

P330,000Less stockholders' equity (P700,000 – P400,000) 300,000Deficiency P 30,000

24.

P.75 Dividend = P370,000 – P250,000 – P30,000 / P400,000 – P250,000 – P30,000

25.

P8,500 = P7,000 + [(P9,000 – P7,000) x .75]

26.

P410,000Total estimated proceeds P910,000 Less asset proceeds claimed by secured creditors: Notes payable and interest (from proceeds of receivables and inventory) P150,000 Mortgage payable and interest (from proceeds of land and building) 320,000 470,000 Total available to unsecured claimants. P440,000 Less distributions to unsecured claims with priority: Wages payable P 10,000

Taxes payable 20,000 30,000 Amount available for unsecured creditors P410,000

27.

64.10%Unsecured portion of notes payable and interest (P500,000 + P30,000 – P150,000) P380,000 Accounts payable 260,000Total claims of unsecured creditors P640,000

Dividend to unsecured creditors: P410,000 ÷ P640,000 = 64.1%

28.

Unsecured portion of notes payable and

Interest P380,000 Dividend on unsecured amount x 64.1% Amount received on unsecured portion P243,580 Proceeds from receivables and inventory 150,000 Total Received P393,580

Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

THEORIES1. debtor2. P5,0003. inability to pay debts as they mature4. a. administrative costs

b. certain postfiling “gap” claims in involuntary filingsc. wages, salaries, and commissionsd. employee benefit planse. deposits by individualsf. taxes

5. infrequent6. two-thirds, more than one-half7. fraudulent, preferential8. realization and liquidation

9. False 14.

False 19. False 24. c 29.

b 34. b 39.

b

10.

False 15.

True 20.

False 25.

a 30.

b 35.

d 40.

c

11.

False 16.

True 21.

c 26.

d 31.

b 36.

b 41.

b

12.

True 17.

True 22.

a 27.

c 32.

a 37.

c 42.

a

13.

False 18.

True 23.

a 28.

e 33.

c 38.

a 43.

c

44. a 49. c 54. d 59.

a

45.

c 50.

d 55.

c 60.

c

46.

c 51.

a 56.

d

47.

a 52.

d 57.

b

48.

b 53.

b 58.

a