Corporate Liquidation & Reorganization and Joint Arrangement

Second Period_ Quiz 1

NAME: Date:
Professor: Section: Score:

1. The estimated recovery of unsecured creditors without priority is equal

a. to the realizable value of the assets pledged plus ​the excess amount multiplied by the
estimated recovery percentage.
b. to the realizable value of the assets pledged minus ​the excess amount multiplied by the
estimated recovery percentage.
c. to their claims multiplied by the estimated recovery percentage.
d. any of these

2. The estimated recovery of partially secured creditors is equal to

a. the realizable value of the assets pledged plus ​the excess amount multiplied by the estimated
recovery percentage.
b. the realizable value of the assets pledged minus ​the excess amount multiplied by the
estimated recovery percentage.
c. their claims multiplied by the estimated recovery percentage.
d. any of these

3. If the total debits in the statement of realization and liquidation exceeds the total credits, there is
a. net gain for the period c. either a or b
b. net loss for the period d. none of these

4. “Assets to be realized” is placed on which side of a statement of realization and liquidation?

a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side

5. “Assets realized” is placed on which side of a statement of realization and liquidation?

a. credit side, measured at realizable value
b. credit side, measured at actual net proceeds from sale
c. debit side, measured at book value
d. no side

6. “Liabilities not liquidated” is placed on which side of a statement of realization and liquidation?
a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side
7. “Liabilities liquidated” is placed on which side of a statement of realization and liquidation?
a. credit side, measured at realizable value
b. credit side, measured at actual settlement amount
c. debit side, measured at book value
d. debit side, measured at actual settlement amount

The next three questions are based on the following information:

Quitter Co. is undergoing liquidation. Relevant information follows:

Carrying
amount Realizable value
Assets pledged with partially secured creditors 80,000 50,000
Free assets 220,000 160,000

Expected settlement amount Amount unsecured

Liabilities with priority 16,000 -
Partially secured creditors 75,000 25,000
Unsecured creditors 155,000 155,000

8. What is the total amount available for payment of claims of unsecured creditors?
a. 210,000 c. 144,000
b. 160,000 d. 0

9. What is the estimated amount of liquidating dividend per peso claim?

a. 1.17 c. 0.88
b. 1.03 d. 0.80

10. What is the amount of deficiency to creditors?

a. 36,000
b. 144,000
c. 160,000
d. 180,000

11. An arrangement of which two or more parties have joint control.

a. joint operation c. joint arrangement
b. joint venture d. elbow joint

12. The contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.
a. significant influence c. control
b. joint control d. contractual control

13. A joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the arrangement.
a. joint operation c. joint arrangement
 b. joint venture d. elbow joint

14. A joint arrangement whereby the parties that have joint control of the arrangement have rights
to the assets, and obligations for the liabilities, relating to the arrangement.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint

15. A party to a joint operation that has joint control of that joint operation.
a. joint operationist c. joint arranger
b. joint venturer d. joint operator

16. A party to a joint venture that has joint control of that joint venture.
a. joint venturist c. joint arrangement
b. joint operationer d. joint venturer

17. According to PFRS 11, it is an entity that participates in a joint arrangement, regardless of
whether that entity has joint control of the arrangement.
a. joint arranger c. minority interest
b. party to a joint arrangement d. participating cat

18. According to PFRS 11, it is a separately identifiable financial structure, including separate legal
entities or entities recognized by statute, regardless of whether those entities have a legal
personality.
a. separate vehicle c. special purpose vehicle
b. special purpose entity d. public utility vehicle

19. In a joint arrangement, which of the following establishes joint control by the parties?
a. mutual sharing of control c. contractual arrangement
b. ownership interest of more than 20% d. stock certificate

20. A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate vehicle.
a. joint operation c. joint arrangement
b. joint venture d. can be either a or b

he following are the transactions of a joint operation formed by A, B and C during a year:
● A contributed cash of ₱​ ​400 and merchandise costing ₱​ ​800.
● B contributed merchandise costing ₱​ ​1,600. Freight-in paid by B is ​₱​80.
● C made purchases amounting to ₱​ ​400 using the cash contributed by A.
● C paid expenses of ​₱​800 using its own cash.
● C made total sales of ​₱​3,200. All the merchandise was sold except one-half of those contributed
by B.
● C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱​ ​120
salary plus bonus of 25% on profit after salary and bonus.
● Interest of 10% per annum is allowed to A and B’s capital contributions.
● C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall
be divided equally.

21. How much is the profit or loss after salaries but before bonus of the joint operation?
a. 192 b. 240 c. 360 d. 420

22. On the cash settlement between the joint operators,

a. A pays ₱​ ​1,288 c. C receives ​₱​96
b. B pays ₱​ ​1,816 d. All of these

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 960 720
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

23. How much is the profit (loss) of the joint operation?

a. 200,000 b. (200,000) c. 180,000 d. (180,000)

24. On the cash settlement between the joint operators,

a. A pays B ₱​ ​368 c. A pays B ​₱​428
b. B pays A ​₱​368 d. B pays A ​₱​428

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 480 240
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

25. How much is the profit (loss) of the joint operation?

a. 760 b. (760) c. 840 d. (840)

26. On the cash settlement between the joint operators,

 a. A pays B ₱​ ​368 c. A pays B ​₱​428
b. B pays A ​₱​368 d. B pays A ​₱​428

27. A, B, and C formed a joint operation which was completed during the year. A is the appointed
manager who will be entitled to a 10% bonus of profit before bonus. Profit or loss after bonus to
A is divided equally among the joint operators.​ ​The accounts of B and C show the following
balances:

Books of B Books of C
Account with A 16 ​Cr. 16 ​Cr.
Account with B 48 ​Cr.
Account with C 56 ​Dr.

Unsold merchandise was charged to A at a cost of ​₱​88. On the cash settlement between the joint
operators,
a. A receives ​₱​72; C pays ₱​ ​32 c. B receives ₱​ ​72; C pays ​₱​32
b. B pays ​₱​72; A pays ₱​ ​40 d. None of these

28. A, B, and C formed a joint operation which was completed during the year. The accounts of the
joint operators show the following balances:

Books of A Books of B Books of C

Account with A - 10 D​r. 10 D​r.
Account with B 16 ​Dr. - 16 ​Dr.
Account with C 26 ​Cr. 26 ​Cr.

On the cash settlement between the joint operators,

a. A receives ​₱​26; C pays ₱​ ​16 c. C receives ​₱​16; A pays ₱​ ​10
b. B pays ​₱​16; A pays ₱​ ​10 d. None of these

29. A, B, and C formed a joint operation. Profit or loss shall be divided equally. The following were
taken from the joint operation’s books:

Debit Credit
JO – Cash 80
Joint operation 20
B, Capital 60
C, Capital 40

A’s share in the joint operation’s profit is ​₱​16. A agreed to be charged for the unsold merchandise as
of year-end. How much is the cost of unsold merchandise charged to A?
a. 56 b. 62 c. 68 d. 72
30. A, B, and C formed a joint operation. The following were taken from the joint operation’s books:

Debit Credit
JO – Cash 80
B, Capital 60
C, Capital 88

The cost of unsold inventory is ​₱​72. The joint operation’s profit is ​₱​44. How much is the balance of
the joint operation account before distribution of profit?
a. 28 b. 116 c. 56 d. 0

“Be joyful in hope, patient in affliction, faithful in prayer.” ​(Romans 12:12)

SOLUTIONS:
1. C
2. A
3. B
4. C
5. B
6. C
7. D

8. C
Solution:
Available for unsecured
creditors
Free assets 160,000
Liabilities with priority (16,000)
Net free assets 144,000

9. D
Solution:
Unsecured portion of partially secured creditors 25,000
Unsecured creditors 155,000
Total unsecured liabilities without priority 180,000

Net free assets 144,000

Divide by: Total unsecured liabilities without priority 180,000
Recovery per peso 0.80

10. A
Solution:
Assets pledged with partially secured creditors 50,000
Free assets 160,000
Liabilities with priority (16,000)
Partially secured creditors (75,000)
Unsecured creditors (155,000)
Deficiency (36,000)

11. C
12. B
13. B
14. A
15. D
16. D
17. B
18. A
19. C
20. D

1. B
Solutions:
Profit or loss is computed as follows:

Joint operation

Merchandise – A 800 3200 Sales – C

Purchases - A's cash

400
Merchandise – B 1600 840 Unsold inventory charged to C​*

Freight - in – B
80
Expenses – C
800

360 Profit before salary and bonus - ​Credit balance

Salaries expense - C 120

Profit after salary but before bonus - ​Credit
240 balance

Bonus expense**
48

192 Profit after salary and bonus

*​Unsold inventory:​ ​(₱1,600 ​plus ​₱80 freight-in) ​multiplied​ by one-half.

2. C
Solution:
Profit is allocated to the joint operators as follows:

Allocation to: A B C Totals

Profit before salary and bonus 360

Salary to C 120 (120)
Bonus to C** 48 (48)
Profit after salary and bonus 192
Interest on capital:
-
A - (300 x 10%) 120 (120)
B - (420 x 10%) 168 (168)
Profit after interests on capital
(96)
Allocation (24 ÷ 3) (32) (32) (32) 96
Net share - as allocated 88 136 136 -

**​Bonus is computed as follows:

P
B = P -
1 + Br

​B = 240 – (240 ÷ 1.25%) = ​48

Cash settlement is determined as follows:

Joint operation - A

Inventory contributed by A 400

Cash contribution 800
Net share in profit 88
Cash settlement – receipt ​ ,288
1

Joint operation - B

Inventory contributed 1,600

Freight paid 80
Net share in profit 136
Cash settlement – receipt ​ ,816
1

Joint operation – C

Expenses paid 800 840 Cost of inventory taken

Net share in profit 136

Cash settlement - receipt 96
3. A
Solution:
Requirement (a): Profit or loss

Joint operation - A

Purchases – A 400 960 Sales - A

Purchases – B 320 720 Sales - B

Expenses – A 800 40 Other income - B

200 Profit - credit balance

4. B
Solution:
Profit is allocated as follows:

Allocation to: A B Totals

Profit for the year 200

10% commission on purchases:

(10% x 400) – A 40 (40)

(10% x 320) – B 32 (32)

20% commission on sales:

(20% x 960) – A 192 (192)

(20% x 720) – B 144 (144)

Total to be divided equally (208)

Allocation: (208 ÷ 2) (104) (104) 208

Net share - as allocated 128 72 -

Cash settlement is determined as follows:

Joint operation - A

Purchases 400 960 Collections on sales

Expenses 800
Net share 128
Cash settlement – receipt 368
 Joint operation - B

Purchases Collections on sales

320 720
Net share 72 40 Collections on other income

368 Cash settlement - payment

5. B
Solution:
Requirement (a): Profit or loss

Joint operation

Purchases – A 400 480 Sales - A

Purchases – B 320 240 Sales - B

Expenses – A 800 40 Other income - B

Loss - debit balance 760

6. B
Solution:
The loss is allocated as follows:

Allocation to: A B Totals

Loss during the year (760)

20% commission on purchases:

(10% x 400) – A 40 (40)

(10% x 320) – B 32 (32)

25% commission on sales:

(20% x 480) – A 96 (96)

(20% x 240) – B 48 (48)

Loss to be allocated equally (976)

Allocation: (976 ÷ 2) (488) (488) 976

Net share - as allocated (352) (408) -

Cash settlement is determined as follows:

Joint operation - A

Purchases Collections on sales

400 480
Expenses 800 352 Net share in loss

Cash settlement - receipt 368

Joint operation - B

Purchases Net share in loss

320 408

240 Collections on sales

40 Collections on other income

368 Cash settlement - payment

7. C
Solution:
The joint operation’s profit is computed as follows:

Joint operation

Account with A 16 56 Account with C

Account with B 48 88 Unsold inventory

80 Profit before bonus - credit balance

Profit is allocated as follows:

Allocation to: A B C Totals

Profit before bonus 80

Bonus to A (80 x 10%) 8 (8)

Profit after bonus 72

Equal allocation (72 ÷ 3) 24 24 24 (72)

As allocated 32 24 24 -

Cash settlement is determined as follows:

Joint operation – A

Contributions 16 88 Inventory taken

Net share in profit 32

40 Cash settlement - payment

Joint operation – B

Contributions 48

Net share in profit 24

Cash settlement – receipt 72

Joint operation – C

56 Withdrawals

Net share in profit 24

32 Cash settlement - payment

Cash settlement – Reconstruction of accounts

8. B
Solution:
The joint operation’s profit is determined as follows:

Joint operation
10 Account with A

Account with C 26 16 Account with B

0 Profit before bonus

Joint operation - A

Contributions 10 Withdrawals

10 Cash settlement - payment

Joint operation - B

Contributions 16 Withdrawals

16 Cash settlement - payment

 Joint operation – C

Contributions 26 Withdrawals

Cash settlement - receipt 26

9. C
Solution:
If A’s share in the joint operation’s profit is ₱16 and profit or loss is divided equally between the three joint
operators, then total profit of the joint operation must be ₱48 (i.e., ₱16 for each joint operator ​multiplied by
3 joint operators).

Unsold merchandise is squeezed after placing relevant data in the joint operation account as shown
below:

Joint operation

Debit balance 20

68 Unsold merchandise (squeeze)

48 Profit - ​credit balance (₱16 x 3)

10. A
Solution:

Joint operation

Debit balance (squeeze) 28

72 Unsold merchandise

44 Profit - ​credit balance