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AST Prob 5 Solution

Bye-bye Corporation is undergoing liquidation and their statement of affairs shows assets with a carrying value of 2.3 million and realizable value of 2.1 million, and liabilities of 2.75 million resulting in a capital deficiency. The document provides details of Bye-bye's assets and liabilities and calculates amounts for assets pledged to secured creditors, unsecured liabilities with priority, estimated deficiency, and estimated recovery percentage for unsecured creditors without priority. Requirements include preparing journal entries for the receiver, the statement of realization and liquidation, computing the ending cash balance, and reconciling the estate deficit account.

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Pamela Evangelista
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413 views6 pages

AST Prob 5 Solution

Bye-bye Corporation is undergoing liquidation and their statement of affairs shows assets with a carrying value of 2.3 million and realizable value of 2.1 million, and liabilities of 2.75 million resulting in a capital deficiency. The document provides details of Bye-bye's assets and liabilities and calculates amounts for assets pledged to secured creditors, unsecured liabilities with priority, estimated deficiency, and estimated recovery percentage for unsecured creditors without priority. Requirements include preparing journal entries for the receiver, the statement of realization and liquidation, computing the ending cash balance, and reconciling the estate deficit account.

Uploaded by

Pamela Evangelista
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PROBLEM 5: FOR CLASSROOM DISCUSSION

Statement of affairs
1. Bye-bye Corporation is undergoing liquidation. Relevant information as of January 1, 20x1 is
shown below:
ASSETS Carrying amounts Realizable value
Cash ₱ 200,000 ₱ 200,000
Accounts Receivable 500,000 450,000
Equipment-net 600,000 150,000
Land 1,000,000 1,300,000
TOTAL ASSSETS 2,300,000 2,100,000

LIABILITIES
Accounts Payable 700,000 700,000
Salaries Payable 800,000 800,000
Note payable 500,000 500,000
Loan payable 750,000 750,000
Total liabilities 2,750,000 2,750,000
EQUITY
Share capital 1,000,000
Deficit (1,450,000)
Capital deficiency (450,000)
TOTAL LIABILITIES 2,300,000
AND EQUITY
Additional information:
• Administrative expenses of 180,000 are expected to be incurred during the liquidation
process.
• The equipment is pledged as collateral security for the note payable.
• The land is pledged as collateral security for the loan payable.
Requirements:
a. Compute for the amounts of the following: (1) Assets pledged to fully secured creditors; (2)
Assets pledged to partially secured creditors; and (3) Free assets and Net free assets.
b. Compute for the amounts of the following: (1) Unsecured liabilities with priority; (2) Fully
secured liabilities; (3) Partially secured liabilities; and (4) Unsecured liabilities without priority.
c. Compute for the estimated deficiency.
d. Compute for the estimated recovery percentage of unsecured creditors without priority.
e. Mr. A, an unsecured non-priority creditor, has a P500,000 claim. How can Mr. A expect to
collect from Bye-bye Corporation?
f. Prepare the statement of affairs.
Requirement (a):
Assets pledged to fully secured creditors
Land 1,300,000

Assets pledged to partially secured creditors


Equipment- net 150,000

Total assets at realizable value 2,100,000


less: Secured creditors:
Fully secured- Loan payable (750,000)
Partially secured- Note payable (up to the RV of (150,000)
equipt. only)
Total free assets 1,200,000
Less: Unsecured creditors with priority:
Estimated administrative expenses (180,000)
Salaries payable (800,000)
Net free assets 220,000

Requirement (b):
Unsecured liabilities with priority:
Administrative expenses 180,000
Salaries payable 800,000
980,000
Fully secured creditors:
Loan payable 750,000

Partially secured creditors:


Notes payable 500,000

Unsecured liabilities without priority:


Notes payable- excess (500k-150k RV of equipt.) 350,000
Accounts payable 700,000
1,050,000

Requirement (c):
Net free assets 220,000
Unsecured liabilities without priority (1,050,000)
Deficiency to unsecured non-priority creditors 830,000

Requirement (d):
Estimated recovery percentage of unsecured creditors = Net free assets
without priority Total unsecured liabilities
without priority

220000/ 1050000 = 20.95 %


Requirement (e):
500,000x20.95%=104,750
Statement of realization and liquidation
2. Use the statement of financial position of Bye-bye Corporation above (carrying amounts only)
and the additional information
below.
Bye-bye's liquidation is entrusted to Hello, a receiver.
Information on January 1, 20x1:
• Interest of P30,000 is expected to be paid on the loan.
• Liquidation costs of P180,000 are expected to be incurred.
Information on transactions for the year ended Dec. 31, 20x1:
a.) P280,000 were collected on P400,000 accounts receivable.
b.) The equipment was sold for P150,000, net of P40,000 disposal costs. The net proceeds were
used to fully settle the note payable. The creditor canceled the balance.
c.) The land was sold for P1,500,000. Disposal costs of P100,000 were incurred on the sale. The
net proceeds were used to fully settle the loan payable, including the interest.
d.) Half of the accounts payable and one-fourth of the salaries payable were settled.
e.) Liquidation costs of P240,000 were paid. Additional P120,000 are expected to be incurred in
20x2.

Requirements:
a. Provide the following journal entries in the books of the receiver:
i. opening journal entry
ii. "new" assets and liabilities
iii. transactions during 20x1
b. Prepare the statement of realization and liquidation.
c. Compute for the ending balance of cash.
d. Compute for the ending balance of the estate deficit account and make a reconciliation for the
computed cash balance.
Requirement (c):

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