MULTIPLE _CHOICE .

QUESTIONS
. :·t;-•~~- t>~..: .' -~i, .. ., ..... ~ . .,
1 · : .. .

1. Philippine National Bank holds a PS00.000 note secured by a building owned

by Luigi Software, which has filed for bankn.Jptc 1( . If +he property has a book
value of P600.COO and a fair market value of P450,000, v,.:hat is the best way to
describe the notes held by Philippine Nation,Ji Bank? ThA bank hds

a. A secured claim of P500,0-.,~.

b. An unsecured claim of P500,000.
c. A sec ured claim of P450,000 and an unsecured claim of P50,000
d. A secured claim of P50,000 and an unsecured claim of PS0,000.
(Adapted)

2. X and Y Inc . owes the Xy1o Corporation P60,000 on account, which is secured
by ac counts rec eivable with a book value of P50,000. The unsecured portion
is considere d a claim under the bankruptc y law, X and Y has fired for
bankruptcy. Its statement of affairs lists the acc ounts receivabl~ securing
the Xylo a c cqunt with an estima ted realizable value of ~~5,000. If the
dividend to general unsecured creditors is 80%, how much c an Xylo expect
to receive?

a . P60,000 c. P57,000
b. 58,000 d . 48,000
(Adapted)

,., ,, 3. P Corporation is a parent, having purchased (>0% of s.compan y's common

stock at par value for P600,000. S Company Ts in financial difficulty. The
parent granted an unsecured loan of. _P200,000 to the subsidiary. An
accountin g statement of affairs for S Company •shows a dividend of 30%. .P
Corporation can expect to receive on the loan of appropria tely: ~

a. P120,()()() c. P36,0CXr
b. 69,000 d. 0
(Adapt~)

4. P Corporation is a parent, t)aving purchased 60% of S·Company•s·commo ~

stock at par yc;ilue fQr P600,QOO. S Company is in financial difficulty. The
parent granted as unsecured loan of Pioo,ooo to the subsidiary~ An
accou'nting statement of affairs for S Company sho.ws-e div~~nd of 30%. P
Corparati<?n can expect to receive payrrientfor itsJgv~stmer1t ,n $,Compan y
of approximately: _._

a. P600,000 C. P108,000
b. 180,b(X) d. 0
(Adapted) 1
 Chapter 2

5. Ker)t, Inc .. has forc~d into bankrup tcy and has begun to liquidate. Unsecured
cla1n:,s will be ~1.d at the rate _of 40 cents on the peso. Apex Co. holds
non-1nt~rf::st beanng-note receiva ble from Kent in the amount of Pl 00 ooo0
collatenahzed by ')'lachinery with a liquidat ion value of P25,000. The totai
amount to be reahzed by Apex on thjs note receiva ble is:
a. P2,5,000 c. P55,000
b. ~.CXX> d. 65,000
(AICPA)
6. Seco Corp. was forced into bankrup tcy and is in the process of liquico ~inj
assets and paying daims. Unsecured claims will be paid at the rate of toriy
cents on the peso. Hale holds a P30,00Q noninterest,..bearing note receivable
from Seco collateralized by an 'asset with a book value of P35,000 and a
liqu~dotion value of es,ooo. The amount to be realized by Hale on this nnt.~ is
a. PS,000 c. P15,000
b. 12,000 d. 17,000
(AICPA)
·7. Blueprint, Inc. signed a note payable to its bank for P10,000. Accrued interest
on the note on February 28, 2015 amounts toE.250. The note is secured by
inventp ry with 0 book vall:Je of P12,000. The inve_ntory is sold for P8,000 and
unsecur ed creditors receive 30 percent of their claims. The bank should
receive the followin g amount in settleme nt of the note and int~rest:
a. Pl0,250 c. PB,675
b 10 000 d. 8,000
. , ' (Adapted)
a. The trust ·for Ardolio, Inc. prepar~s a stateme nt of affairs which shows t~at
, unsecured creditors whose claims total P60,000 may expect. to receive
approxi mately P36,000 if assets ore sold for the benefit of creditors.

• ,Michae l.is an employ ee who is owed' P750.

• Meldca n holds a note for Pl.000 on which interest of P50 is
acc~ed ; nothing has been pledged on the note.
• Compb oy t:lolds a note of P6,000 od..whic h interest of P300 is
accrued : securities with a book value of P.6;500 and a present
mdrket value 'of ~i,OOOpare pledged on the note.
• Serpor holds a no e - or 2,500 on which interest of P150 is accrued
property with o book value of P2,000 and a present market value- ·
of,P3,0,00 is.pledged on the nof'e. ··
How much may each o~ the following creditor~ hope to receive?
Michael Meldcan Compb oy . Serpor
a. p 0 p 0 p 0 p 0
b. 90 o·. 6,300 2,390
C. 350 1,050 5,780
d. 0
700 630 5,780 2,650
(Adapted)

~ .........
 9 lun tar y ba nk ru ptc y pe titi on on August 15, 2015, an d the
Erop Co . file d a vo reflects the following am ounts :
· sta tem en t of affairs

Estim at ed
Bo ok current
va lue va lue
Assets:
j cre ditors P 300,000
Assets ple dg ed with fully secure( P370,000
cured
Assets ple dg ed w ith partially se
........
creditors ......... ... ................. ..... .... 180,000 120,000
..... ............. ...
Free assets ......... .. .... .... ............ 42 0,0 0) 320,000
P8 10,(XX)
-- 900,COO
P .

Ua bil itie s:
........ ....... .
Liabilities wi th priority ............ .... P70,000
........ ........ .
Fully se cu re d creditors ...... .-....... 260,000
~ ................. . 200,000
Partially se cu re d creditors ......
Un se cu red creditors ........-: ... ~ ....
................ .. 540,000
Pl,070,000
nt
e as sets ar e co nv er ted to cash at the es tim ate d curre
Assume ·th at th
ate d. W ha t am ou nt of cash will be av ail ab le
values an d th e bu sin es s is liq uid
to pa y un se cu re d·n on pr ior ity claims_?,
- - - - -- - -~

a. P240,000 c. . P320,000
b. 280,000 - d. · 360,000
(AICPA)

Ca dil lac au tom ob ile wi th litt

le cash
d Co .; Inc . pu rch as ed a
10. Za mo ra an th e Ca dil lac . fo! ·4a easy mo nth ly
d a no te~ s·ec ur ~d by
do wn an d sig ne nk ru ptc y, the ba lan ce du e on
co m pa ny file s for ba
pa ym en ts. W h~ n th e 0,000
am ou nt to P6,00 0..:00 0. Th e ce r has a bo ok va lue of PS ,00
the Ca dil lac e un se cu red creditors of Zamora
ble va lue ~f P .4,000 .~0QO . Th
an d a rie t re ali za of the ir claims. In the liquidation ,
ive SO _p er ce nt
an d Co . ca n ex pe ct to re ce .
ho lds th e no te on the Ca dil lac should re ce ive :
th e bank: ·th at
c. P-4,000,000
a. P6,000,0QO 3,000,000
d.
b. 5,000,000 (AICPA}
 11. The following data are proviqed by.the Troubled Company:

Assets ot book value .. ~.... ;.................... :............. ;: ........A••·· --·: P150,000

Assets at het realizable value ............................................ . l 05,CXX)
Liabilities at book value:
·Fully secured mortgage .......... :....... :... '. ....................... . (>(),000
Unsecured accounts anp notes payable ............... . 70:CXJJ
Unrecorded liabilities:
Interest on bank notes .........~ ............. ;........ :................ ~
.Estimated
.-.. . .
cost of administering
__..
estate .................. . 6,000

The CO(Jrf .·has, appointed·a·· trustee to liquidate the compa_n y.

The journal entry made by the trustee to record the assets and liabilities
·-should
·.
inctude
. an. estate deficit of:
~
·

a. P31,500 c. P25~500
b. 3LOOO, d. 25,000
{Adapted)

12. Using the same information in Number 11, the statement of affairs prepared
_by th~ trustee .at this· time . should incl.ude an estimated deficiency to
unsecured creditors of: • · · · ·

a. P45,000 . · c. P31,500
b. 39,000 d. 25,000
(Adapted)

/ 13. Noh Lugi Corporation is in·bankruptcy and is being liquidated by a court-

appointed trustee. The financial report that follow was prepared by the
trustee just before the final ca~h distribution:

Assets:
Cash ·····················································--·-························ -p 100, 000
Approved Claims:
Mortgage payable (secured by property
that was sold for PS0,000) ................................. . P 80,000
Accounts payable, unsecured ................................... . 50,000 ·
Administrative expenses payable,
unsecured ················~············································ 8,000 ,
Salaries payable, unsecured ..................................... . 2,~
P140,000
 cor7'<Jf'{l/ C u , ·1 • .
;;--=--
for tru stees an d oth er cos ts of ad min iste rin g
The adm inis tra tive exp ens es are
the de bto r co rpo rat ion 's es tat e.
rs?
w sho uld the P 100 ,000 be dis trib ute d to the fo llow ing c red ito
Ho
Unsecured
I Unsecured
Cre dit ors
wit h Priority
Pa rtia lly
Sec ure d
Cre ditors
Cr ed ito rs
.wit ho ut Priorit y
PB0,000 P20,000
a. p 1O,OOC,
10,000 80,000
b. 25,000
5,000 65,000
C. 25,0CX)
10,000 65,000
d. (A da pte d)

of affairs .of Do wn sid e Co mp an

y,
er 18, 201 5, the sta tem en t
14. On De ce mb
, inc lud ed the following:
which is in ba nk rup tcy liq uid ati on
XX)
s ple dg ed for full y s~ cu red liab ilities ........·................• PlOO,C
Asset 40,QOO
s ple dg ed for pa rtia lly se cu red liabilities ................ .
As set 120,CXX)
e ass ets ............... .......... ..... .......... ................................... :.. .
Fre 80,CXX)
se cu red liab iliti es .............. ..... ..... ................................. ..
Fully 50,CXX)
rtia lly se cu red liab iliti es ..... ..... ..... ......·.............., ................ .
Pa 60,CXX)
ure d liab iliti es wit h pri ori ty ..... ...................................
Unsec 90,CXX)
red liab iliti es wit ho ut pri ori ty .......... ...-.................... .
Unsecu

Co mp ute the es tim ate d am

•.
ou nt to be pa id to:

Unsecured Partially Unsecured

Fully
Liabilities Secured Liabilities
Secured
wi tho ut pri ori ty
• I '

w/ Priority tia bil itie s

Uabilities
· P60,000 P.50,000 P70,000
q. PB0,000 88,000
64,000 60,000 48,000·
b. 72,000
C. 80,000 48,000 60,000
60,000 48,000 72,000
d. 80,000
(A da pte d)
 l 5. The follo wing data wer e take n from the stat eme
nt of offairs for Li
com pan y:
quo
Assets pled ged for ·fully securedUabilities/
. I P75 000) P9
(fair va ue, , ............•••· .. ···· ·· ····· ·....... ........... ...... 0,()()()
--
-
Assets pled ged to partially secured lia~ilities -
.,r valu e , P52 ,000) ....-........
· .........
· ....... ; ....... ....... ....... ... . '74,000
(fa
Free assets (fair value, P40,000) ···:············· ........ ~ ....... ....... .. . 70,0CX)
Unsecured liabilities with priority ........................·····.. •.•.. .... .. 7,0CXJ
Fully secured liabilities 30,0(X)
•·············· .. ~············· ····
Partially secu red liabilit·i;~·:::.::::::::::::::............................ . ·... .. 60,(XXJ
Unsecured iiabilities with oufpr~ority •···:···........... ····· ·.. ·····.. 1l 2,000

. Com pute the: (1) tota l esti mat ed defi cien cy to unsE:cur
ed c redi tors, a nd
(2) the exp ecte d reco very per peso.of uns~~tJ,red
~l_a1rns._ \
-------
a. (1) 42,000; (2) P~,6 5 c. _(1) P
0; (2) P1.00
b. (1) 3,000; (2) P.98 d. ~ (1) P42,000; (2) P .70
(Ada pted)
Katherine, a CPA, ha~ ·pre pare d a ~tat eme nt of affa irsl ---~
- \
...:,. 16.
Assets which there
are no claims or liens are exp ecte d to ·pro duc e P70,000
, whi ch must be
allo cate d to uns ecu red claims ofol l·closses tota ling P105
,000. The following
are some of the claims outs tqnd ing:_ .: - -
1. - Acc oun ting fees for Katherine, Pl ,500.·
.
2. An u·n rec ord ~ note lor' Pl:,009, on whi ch P60 of inte
acc rued , held.by Ang ie. rest has
v\fG tvf _<lt' -,__
3. A note for P;3,000 secu red ·b y P4,000-re ceiv able s, esti
· 60% coll ecti ble held ~ mat ed to be
-.
4. AP 1,500 n~te, on wh i_a ~f .interest has acc rue di
held by Joyots.
Property with a boo k valu e·of P1,000 and .a mar ket valu
is pled ged to gua rant ee pay men t of prin cipa l.and interest.P1,800
e of
5. Unp aid .
inco me taxes of P3,500 · ..
Com pute the estimated pay men t to _eartially sec ure d cred
.
itors : .
-- -
• ~ - -- - -

a. Pl ,060 c. P2,490
1 950
b. • d. 2,790
 Corf)__orate Liqu idati o,!
103

17. The creditors if the Rog ero d Cor pora tion agr
eed to a liqu ida ti o n bas ed on
the stat eme nt of a ff a irs , sugges-t ed tha t unsec
ure d c red itors, w itho ut priority
wou ld rece ive app rox ima tely P.60 o n the p
eso . The unsec ure d c re ditors
are inte rest ed in d e term inin g whe ther the pre
limi no ry es tima te still see m s
app rop riate . The trus tee w as ori gina lly assig ned
noncus h asse ts o f P 1.480,000
and cr&ditors c laims as fo llow s: fully sec ured
, P67 0,00
.P400,000: uns ecu red w ith p riorit y, P200,000, a nd uns 0, par tia lly sec ure d,
ec ure d w itho ut prio rity,
P320.000. Asse ts w ith a boo k vo lue o f P45
,000 and uns ecu red lia b ilities
{wit hou t priority) o f P35 ,000 w ere subs equ ~n
tly rl1" r:ov :;red Asse ts w ith a
total boo k valu e of P7 40 ,000 w ere sold for P7 l SJX
X.1 ,,8t. F-ully se cur ed lia biliti e s
of P-410,000 a nd partiall y sec ure d liab 11i!ie s o~r'.713
0 ,(JOO '"' _)rep aid . Rem aining
liqu idation e xpe nse s w ere es tima ted to be P.30
,000 .
Assume the rem aini ng non cas h assets hav e
a n es t;ma ted net real izab le
valu e as follows :

Assets trac eab le to fully sec ure d cr~ dito rs .......

................ P240,C)J()
Assets trac eab le to par tiall y sec ure d cred itor
s ................ 110,(X))
Rem aini ng assets··················································· 382,(XX)
···.·············
Det erm inin g the rev ised .est ima te of the
div ide nd to be rec eive d by
uns ecu red cred itor s with out prio rity:

a. 100.00% c. 45.97%
b. 66.17% d. Can not be det erm ine d
1 18. Palu bog Co. is inso lven t and its sta tem ent
of affa irs sho ws the follo wi~ g
info rma tion : ·

Est ima ted gain s on rea liza tion of assets ......

............ ... Pl ,«Q,CXX)
Est ima ted losses on rea liza tion of assets ... ,......
...... ...... 2.,CXX>.CXX>
Additional assets ··································•,•e:••······~,·····
Additiorlal liabilities ...... ............ ........................ ........ . 1.280,CXX)
............... ":• 960,CXX>
Capita·, stock ...... ................................. .................. 11 ••· ...
.. .. ~ ....... .
\

2 ,00),00)
Deficit ............ ................................................... ........ ......
........ . 1,200,00 )
The pro -rat e pay me nt on the pes o to stoc kho
lder s (es tim ate d am oun t to
be rec ove red by stoc kho lder s) is:

a. P.30
b. .<43
c. P.57
d. .70
(Ad apt ed)
 Chapter 2

104 1

. a corp. has ooen undergoing liquid?t1on sine~ .Ja. nu'?ry 1: As of

· · Marci-
its .condensed statement of reolizot1on and 11qu1dat1on is pre sent
l9. ZeroN
e'1ow·
ed'
31
b Pl ,375,CXX)
750,0(X)
Assets~ets
: to be realized ............................................. .. . .
1,200,000
. A se;s acquired·······•·"·····················.........................
A:!t!
~~l~~ized ,......................
.............................................
........................... ............... .
1,375,CXX)

ties: ties liquidated ..........:...................................... . P 1,875.000

LiabiliLiabili
Liobnities not liquidated .........................;............... 1,700.000
liabilities to be liquidated .......................•...... ••... ••• 2,250.000
Liabilities .assumed .......................... m .. ~ ......... ......... .- 1,625,COO

Revenues and Expenses: . P3, 125,COO

Supplementary charges ........ ~................................. 1

Supplementary credifs ..........................._. ....... • •........ 2,800,COO

The net gain ~oss) for the tnree~month perio d endi ng Ma~c h 3 1 is:·
a. P250,000 c·. · P425,000
b. {325,000) . . · d. 750,0CXJ
(Adapted)

balan ce
20. Using the same information on No.,19, comp ute the ending_ cash O
of cash accot!Jnt assuming that comm on stock and defic its are Pl ,500,0C
and P500,000, respectively. · -

a. P425,000 c. · Pl ,325,000
b. P575,000 .d. Pl ,375,0CX)

Items 21 through 33 are based on the follow ing data :

us
The Palubog Com pany has decid ed to seek liquid ation after previohas
restructuring and quasi-reorganization attem pts failed . ·The com pany
the following cond ense d balan ce sheet ns of Moy 1, 2015:
Assets
Liabilities and Stoc khold ers' Equity
Cash .......................... ,. P 12, ()()()---
Receivables (net) .... . 280,0CX) / AL ccrved payroll ................. · p 40.~
Inventory ..,..............,.. 70,QOO,, oons from office.r 50,U\N
Prepaid expenses .... . 1,000 ~- A · . ············· 000 ·
EC~ou nts POYO ble ···········~· 60,000
Plant assets .............. .. 360, ·
Good will .................. ..
300,000 8q~tPment loan paya ble.
39,000 1 Cus,nes
0 s loan paya ble .... ~.. 180,000 ,_
mmon stock 60,CdJ
Deficit .. ·······.......... (- 48,OQQJ·
Total ............. m... P7Q2,000 · ...... .. ...
Total ......... ::::::::::::::::::::: i>10 2.~
 Corpara te liquidation ,105
I

The equipment loan payable is secured by specific plant assets having a book
value of P3CX),OOO and a realizable value of P3EA:l,CXX). Of the accounts payable,
P40,(XX) is secured by inventory which has a cost of P40,CXX> and a fiquida tion
value of P44,CXXJ. The balance of the inventory has a reafizable value of P32,(x;_x>.
Receivables with o book value and market value· of Pl 00,CXX> and P80,dx>
as
respectively have been pledged collateral on the business loan payable. The
balance of the receivables have a realiza ble value of P1EIJ,000 .
{Adapted)

21. Assuming trustee expenses of P12,000 in addi11on to record ed liabilities, which

of the remai ning unsecured creditors has the next highes t order of priority. -1

\
a. Accru ed payroll c. Loan from office r
b. · Equip ment loan payab le. d. Busine ss loan payab le

22. The realita ble value o_

f assets pledg ed with fully _
s ecure d creditors is:

a. P~9.0 00 · c. P40,000
b. 44,000 d. 489,(XX)

23. Of those credit ors who are partia lly secured, their unsec ured amou nts are:
___ ,,
a. P430,000 c. P540,000
b. 110,000 d. . 120,000

24. The total realiz able value of free assets to unsec ured credit ors befor e
\
unsecured credit ors with priority -is·: )
a. P628,000 C. P220,000 ·
b. 232,000 d. 198,000
25. The divide nd to unsec ured creditors or the expec ted recov ery perce ntage
of unsec ured_credttors (round ea) is: _. -

a. 90% C. . 88%
b. -100% d. 76%
26. Estimated defici ency to unse.cured credit ors is:

a. P -O- C. P 2,000
b. 22,000 d. 12,000
27. Estimated loss on asset dispo!;ition is:

a. P51,000 c. PSl,000
b. 89,000 d. 90,000

28. Estimated gain as asset disposition is:

a. P56,000 c. P52,000
b. 54,000 d. 6,000

2.9. Estimated amount paid to unsecured creditors with priori~ is:

a. Pl0,000 C. P 40,000 .
· b. 30,000 d. . 11 0,000

30. Estimat~d amount paid to fully" s~cured creditors is:

a. P-40,000 . . c. P470,000
b. 390000
.'
d. 430,000
. .
31. Estimated amol)nt paid to unsecured creditors without.priority is:
a. . P70,000. c. P20,000
b. 61,600 · d. 50,000 ·

32. Estimated payment to partially secured creditors is:

a. P358,800 · C. . P168,CXX)
b. . 516,800 -~~·~·.'-
f))u d.-. 430,000

.33. Estimated payment to creditors is (discrepa~cy is expected due to rounding

off).

d. P580,000 C. . P571,000. .
b. 659,l:IX) ·d ..- 668,400
Corporate Liquidation 107

MULTIPLE CHOICE ANSWERS

1. C 11. C 21. a 31. b

2. C 12. C 22. b 32. b
3. b 13. d I 23. b 33. d
4. d 14. d 24. d
5. C ·1s. a 25. C
6. C 16. d 26. b
7. C 17. C 27. C
8. d 18. d 28. a
9. d 19. c . 29. C
10. b 20. C 30. 0

1. (C)
na
The P500,000 not~s payab le to PNB is considered as partially secured liabilities wherei
re, PNB is secured
property with a fair market value of P450,000 is used as collateral. Therefo notes is
to receive P450,000 becaus e of the property while the balanc e· of PS0,000 of the ·
unsecured.

2. (C) .
ts
The P60,000 owes to Xylo Corp. is consid ~red a partiall y secured ·liabilities. Accounre,
receivable with a realizable value.o f P45,000 is pledge d to !:ecure the liability. Therefo
. the estimated.am ount ·to be paid to Xylo Corp. would be as follows:

Accounts Receiv able at net realizable value .... :............... :.................. P45,000
·Add: Portron of free assets used to pay the unsecured
amoun t: .(P60,000 - P45,000) x .80 ...................:............................... 12,0CX>

Estimated amoun t to be paid to partially secured_

liabilities ...................................:............................................................. P57,000 (c)

3. (b)
red
Since the P Corp. expect to recove r P.30 for every Pl liability. Therefore, the unsecu
liability of S Compa ny .that would be paic;J were as follo\¥5:
P200,000
Unsecured loan- ·····························································•···· ···~···~--·-t. . 11-••·····
Multiplied by: Expected .recovery per peso of
unsecured creditors ...................... - ............... _._, ..••_ ... _.~.: 30CJ»
P 60,000. (b)

4. (dJ .
This problem Is simlla to No. 3, exc;ept that the qu~stlon Involves payme nt for its Investment
parent
in S Compa ny. Remem b~r that recelvabl~s and payables transac ted ·betwe en
nt Is
and subsidiary still exist on their separate balanc e sheet. So, when collecflon or payme of
nt
made, it will still be journalized In the usual manner, like an ordinary collection or payme . '- t