CORPORATE LIQUIDATION

Corporate Liquidation

• A corporation is
considered insolvent
when it is unable to pay
its debts as they come
due, or when its total
debts exceed the fair
value of its total assets.
• Equity Insolvency - the
inability to make
payments in due course
• Bankruptcy Insolvency
- total debts that exceed
the fair value of total
assets
• Debtor Corporation that
are insolvent in the
equity sense may be able
to avoid bankruptcy
proceedings by
negotiating an
agreement directly with
creditors which we call
debt restructuring,
whereas, Debtor
Corporation that are
insolvent in the
bankruptcy sense will
ordinarily be reorganized
or liquidated under the
supervision of a
bankruptcy court.
• The insolvent’s financial
position and the status of
its creditors is shown and
analyzed in a statement
of affairs. In the statement of affairs, the assets are reported at their estimated realizable values while
the liabilities are reported at their balance sheet amounts.

Enterprises in • Business Failure is a common phenomenon in a free enterprise company.

Financial • It may be due to a variety of reasons such as incompetent management, poor
Difficulty operating control, inadequate financing, fraud, or other unexpected adverse
developments.
• Among the inevitable symptoms of business failure is a shortage of funds or a
lack of liquidity, which results in the enterprise’s liability inability to meet its
current obligations as they become due.

Liquidity • Liquidity refers mainly to a firm’s ability to meet its short-term obligations, while
solvency relates to the longer time span of obligation.
• Both of these situations are interrelated.
• An auditor who examines the financial difficulties and which may even be in
default of loan agreement covenants must, at some point, evaluate the
enterprise with a history of losses and resulting financial difficulties and which
may even be in default of a loan agreement covenants must, at some point,
evaluate the enterprise’s ability to survive financially. If there is evidence that
the ability of the enterprise to continue as a going concern can no longer be
safely assumed, the auditor may have to qualify his or her opinion, or in some
cases disclaim opinion.

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 Insolvency • A business enterprise can be insolvent in the conventional (or equity) sense when
it is unable to pay off its liabilities as they become due.
• The enterprise is insolvent in the legal sense when the financial condition is such
that the sum of the entity’s debt is greater than all of such entity’s property at
fair valuation.
• Thus, in the legal sense, an enterprise remains solvent as long as the fair value
of its assets exceeds its liabilities, even though the enterprise cannot meet its
current maturing obligations because of an insufficiency of liquid resources.

Liquidations • When the financial position of the debtor is such that it cannot resolve its
financial difficulties by any of the following quasi-reorganization, trouble-debt
restructuring and dacion-en-pago accounting, the corporation will have to resort
to liquidation.
• This process may be started by the debtor filing a debtor’s voluntary petition or
creditor’s involuntary petition.

Trustee in • The duties of the trustee in liquidations are similar to those in a reorganization
Bankruptcy except that the focus is on a realization of assets and a liquidation of liabilities
rather than on preservation and continuation of business.
• In addition, the trustee must assume control over the assets of the debtor,
convert assets into cash, and liquidate the business as expeditiously as is
compatible with the best interest of affected parties.
• In the course liquidation, the trustee may continue business activities, if that is in
the interest of an orderly liquidation.

Accounting and • The basic focus of accounting for a bankrupt is that of a “quitting concern” rather
Reporting for than a “going concern” which is the usual assumption in accounting.
Liquidation • The statement that has been devised for that purpose is the statement of affairs,
which is hypothetical or pro-forma in nature and which represents the best
estimate on the outcome of the liquidation of a debtor’s business.

Classification of Assets and Liabilities

Assets Liabilities
1. Assets pledged with fully secured creditors 1. Creditors with priority (WATD)
2. Assets pledged with partly secured with W– wages payable
creditors A – administrative expenses of the receiver
3. Free assets- assets that have not been pledged T – taxes
D- deferred revenue *
*Note:
Goods or Services (no longer with priority
marketable)
Goods or Services (marketable) without priority

2. Fully secured creditors

3. Partly secured creditors
4. Unsecured creditors

Statement of Affairs reflects:

a. The net realizable value of the debtor’s assets and
b. The ultimate application of these proceeds of specific liabilities.

Assets are classified into three categories as follows:

1. Assets pledge to fully secured creditors NRV of the Assets = Liabilities
NRV of the Assets > Liabilities
2. Assets pledge to partially secured creditors NRV of the Assets < Liabilities
3. Free assets Not pledge as security for any particular liability

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Liabilities are classified into four categories and listed in parallel fashion as follows:
1. Unsecured liabilities with priority. When creditor has no lien on any specific assets of the debtor
corporation, but it claims rank ahead of other unsecured liabilities in the order of payment, such as
administrative expenses of the receiver, unpaid employees salaries and wages and benefit plans and taxes.
2. Fully secured creditors. The creditor has lien on specific assets whose estimated NRV equals or exceeds the
amount of the liability.
3. Partially secured creditors. Creditor has lien on specific assets whose estimated NRV is less than the
amount of the liability.
4. Unsecured creditors. All other liabilities for which the creditor has no lien on any specific assets of the
debtor corporation.

1. Net Free Assets:

Assets pledged to fully secured creditors xxx

Fully secured liabilities (xxx)
Other free assets xxx
Unsecured with priority (xxx)
Net Free Assets (unsecured non-priority claims) xxx

2. Unsecured Without Priority:

Partially secured creditors xxx

Assets pledged to partially secured creditors (xxx)
Other unsecured without priority xxx
Unsecured without priority xxx

• If net free assets is less than unsecured without priority, difference is estimated deficiency to unsecured
creditors. If there is deficiency, compute for recovery percentage.

• Recovery Percentage/Dividend to general unsecured creditors = Net Free Assets_________

Unsecured without priority
• Payments to:
o Fully secured creditors = 100%
o Partially secured creditors:

Secured part = 100%

Unsecured part = Unsecured part x recovery %
o Unsecured with priority = 100%
o Unsecured without priority = Unsecured without priority x recovery %

• Unsecured Liabilities x rate of recovery = amount received by unsecured creditors

Estate Equity (Deficit)

Estate equity, beginning xxx
Net gain (loss) on realization of assets (xxx)
Administrative expenses (xxx)
Estate Deficit, end (xxx)

Basic Reports Prepared in Corporate Liquidation

1. Statement of Affairs. This statement is prepared as of a given point in time for a business enterprise
entering into the stage of liquidation. The purpose of this statement is to display the assets and liabilities
and of the debtor enterprise from a liquidation viewpoint, because liquidation is the outcome of the
bankruptcy proceedings. Thus, assets displayed in the statement of affairs are valued at current fair
values; carrying amounts are presented on a memorandum basis.

2. Statement of Realization and Liquidation. This is an activity statement that is intended to show
progress, i.e., actual transactions toward the liquidation of a debtor’s estate. Its original purpose is to
inform the bankruptcy court and interested creditors of the accomplishments of the trustee.

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The Statement of Realization and Liquidation differs from the Statement of Affairs in the following respects:

Statement of Affairs Statement of Realization and Liquidation

Reports Pro-forma nature and is based estimates Reports the actual liquidation results
rather than actual results.

Provides A summary of the estimated results of a An ongoing reporting of the trustee’s activities and is
completed liquidation. updated throughout the liquidation process.

Statement of Realization and Liquidation

A trustee is appointed to direct liquidation and settlement with creditors. He is required to maintain records to
show the course of operations, reorganization or dissolution. When the trustee fails to restoring financial solvency
of the insolvent debtor or in reorganizing the company, the assets are converted into cash and creditors are paid
off in accordance with their legal rights. A summary of the course of operations of a business under the
administration of a trustee is presented in a special report called statement of realization and liquidation.

Assets (Except Cash)

Assets to be realized Assets realized

Assets acquired Assets not realized

Liabilities

Liabilities liquidated Liabilities to be liquidated

Liabilities not liquidated Liabilities assumed

Revenues and Expenses

Supplementary charges Supplementary credits

Net gain-balancing Net loss- balancing

Total debit Total credit

Sales on account:
Accounts receivable (assets acquired) xxx
Sales (supplementary credits) xxx

Purchases on account:
Purchases (supplementary charges) xxx
Accounts payable (liabilities assumed) Xxx

Summary

Methods Values
1. Statement of Affairs
ESTIMATES
2. Statement of Deficiency
3. Statement of Realization and Liquidation ACTUAL

I.
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 Asset pledge to Fully Secured liability (AP-FSL) xx
less: Fully Secured Liability (FSL) (xx)
Excess: (Considered as free assets) xx
plus: Asset not pledged xx
Total Free Assets (TFA) xx
less: Total Unsecured Creditors with priority* (xx)
Net Free Assets (NFA) xx
less: Total Unsecured Creditors without priority* (xx)
Estimated Deficiency to Unsecured Creditors (EDUC) xx

II.
Partially Secured Liability (PSL) xx
less: Assets Pledged to Partially Secured Liability (AP - PSL) (xx)
Excess: (Considered as Unsecured credits) xx
plus: Liabilities not secured by any asset xx
Total Unsecured Creditors without priority xx

Total Unsecured Creditors with priority*

1. Assessment, Taxes and Dues to Government
2. Compensation due to employees
3. Expenses incurred

Statement of Deficiency
Loss on Realization (LOREA) xx xx Gain on Realization (GOREA)
Increase in liability xx xx Increase in asset
Estimated Gross Loss xx xx Estimated Gross Gain
Estimated NET LOSS xx
xx Loss Absorbed by Stockholders
Loss Absorbed by Unsecured Creditors xx
aka: EDUC under Statement of Affairs

Statement of Realization and Liquidation

Assets To Be Realized xx xx Liabilities To Be Realized
Assets Acquired xx xx Liabilities Assumed or Incurred
Liabilities Liquidated xx xx Assets Realized
Liabilities Not Liquidated xx xx Assets Not Realized

Supplemental Debit xx xx Supplemental Credit

LOSS xx xx GAIN

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 PROBLEMS

Problem 1: (Statement of affairs)

Bye-bye corporation is undergoing liquidation. Relevant information as of January 1, 20X1 is shown below:

ASSETS
Carrying amounts Net realizable value
Cash P200,000 200,000
Accounts receivable 500,000 450,000
Equipment –net 600,000 150,000
Land 1,000,000 1,300,000
Total Assets P2,300,000 P2,100,000

LIABILITIES

Accounts payable P700,000 P700,000

Salaries payable 800,000 800,000
Notes payable 500,000 500,000
Loan payable 750,000 750,000
Total Liabilities P2,750,000 P2,750,000

EQUITY

Share Capital 1,000,000

Deficit (1,450,000)
Capital deficiency (450,000)

TOTAL LIABILITIES & 2,300,000

EQUITY

Additional information:
• Administrative expenses expected to be incurred during the liquidation process is P180,000.
• The equipment is pledged as collateral security for the notes payable.
• The land is pledged as collateral security for the loan payable.

Requirements:
a. Identify the following classifications of the assets: (1) Assets pledged to fully secured creditors; (2) Assets
pledged to partially secured creditors; and (3) Free assets and Net free assets.
b. Identify the following classifications of the liabilities: (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.
e. Assuming all the assets were sold, and all the liabilities were settled, equal to their realizable values, how
much would Mr. A, an unsecured non-priority, would expect to receive from his P500,000 claim from Bye-
bye company?
f. Prepare the statement of affairs.

1. Solutions:

Requirement (a):

Assets pledged to fully secured creditors:

Land 1,300,000
Loan payable (750,000)

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Available for unsecured creditors 550,000

Assets pledged to partially secured creditors:

Equipment - net 150,000
Notes payable (500,000)
Available for unsecured creditors -

Free assets:
Excess of land over loan payable 550,000
Cash 200,000
Accounts receivable 450,000
Total free assets 1,200,000
Unsecured liabilities with priority:
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 350,000
Accounts payable 700,000
1,050,000

Requirement (c):

Total realizable value of assets 2,100,000

Less: Unsecured liabilities with priority

Salaries (800,000)
Administrative expenses (180,000) (980,000)

Less: Fully secured liabilities

Loan payable (750,000)

Less: Secured portion of partially secured

Liabilities
Notes payable (fair value of equipment) (150,000)

Excess available to unsecured liabilities without priority (Net free

220,000
assets)
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Less: Unsecured liabilities without priority
Notes payable - excess over fair value of
equipment (500K - 150K) (350,000)
Accounts payable (700,000)

Estimated deficiency to unsecured non-priority creditors (830,000)

Requirement (d):

Estimated recovery percentage of unsecured Net free assets

=
creditors without priority Total unsecured liabilities without priority

= 220,000 ÷ 1,050,000 (see requirement ‘b’) = 20.95%

Requirement (e):
500,000 x 20.95% = 104,761.90

Requirement (f):

BYE-BYE CORPORATION
STATEMENT OF AFFAIRS
AS OF JANUARY 1, 20X1
Realizable Available for
Book values ASSETS values unsecured creditors
Assets pledged to fully secured
creditors:
1,000,000 Land 1,300,000
Loan payable (750,000) 550,000

Assets pledged to partially secured

creditors:
600,000 Equipment - net 150,000
Notes payable (500,000) -

Free assets:
200,000 Cash 200,000
500,000 Accounts receivable 450,000 650,000
Total free assets 1,200,000
Less: Unsecured liabilities with priority (see
below) (980,000)
Net free assets 220,000
Estimated deficiency (squeeze) 830,000
2,300,000 Totals 1,050,000

Realizable Unsecured non-

Book values LIABILITIES values priority liabilities
Unsecured liabilities with priority:
- Administrative expenses 180,000
800,000 Salaries payable 800,000 -

Fully secured creditors:

750,000 Loan payable 750,000 -

Partially secured creditors:

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 500,000 Notes payable 500,000
Equipment - net (150,000) 350,000

Unsecured creditors:
700,000 Accounts payable 700,000 700,000

(450,000) Shareholders' equity - -

2,300,000 Totals 1,050,000

Problem 2: (Statement of Realization and Liquidation and Statement of Estate Deficit)

The Liquid Company had a very unstable financial condition caused by a deficiency of liquid assets. On February 4,
20x10, the following information was available:
Cash P112,000
Assets To Be Realized:
Accounts receivable 80,000
Merchandise inventory 160,000
Investment in common stock 26,400
Land 100,000
Buildings 60,000
Machinery and equipment 48,000
Liabilities To Be Liquidated:
Notes payable 244,000
Accounts payable 288,000
Salaries and wages 40,000
Taxes payable 8,000
Bank loan 180,000
Estimated deficit (173,600)

During the six-month period ending July 31, 20x10, the trustee sold the investment in common stock for P26,000,
realized P84,000 for the accounts receivable, sold the merchandise for P152,000, and paid-off P26,000 of the bank
loan and all liabilities with priorities (salaries and wages payable, taxes payable) as well as P7,440 for estate
administration expenses.

Determine:
1. The estate deficit, ending (July 31, 20x10) should be:
a. P161,760 b. P178,000 c. P185,440 d. P189,440

2. The net (gain)loss or realization and liquidation should be:

a. P11,840 loss b. P1,840 gain c. P15,840 loss d. P4,400 loss

3. The cash balance, ending (July 31, 20x10) should be:

a. P0 b. P185,440 c. P188,000 d. P292,560

Version 1
Statement of Realization and
Liquidation

Estate Deficit, beginning 173,600

Asset Realized:
Sales price Fair Value (Gain) Loss
Investment 26,000 26,400 400
Accounts receivable 84,000 80,000 (4,000)

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Merchandise Inventory 152,000 160,000 8,000 4,400

Liquidated:
PSCreditors-Bank Loan 26,000
Unsecured Creditors w/ priority:
Salaries and Wages 40,000
Taxes 8,000
74,000
Administrative Expenses 7,440
Estate Deficit, ending 185,440

Version 2
Statement of Realization and Liquidation
Assets to be Realized: Assets Realized:
AR 80,000 Investment in C/S 26,000
MI 160,000 AR 84,000
Investment in C/S 26,400 MI 152,000
Land 100,000
Bldg. 60,000
Mach and Equip 48,000

Assets Acquired -0- Assets Not Realized:

Land 100,000
Bldg. 60,000
Mach and Equip 48,000

Liabilities Liquidated: Liabilities to be Liquidated:

Bank loan 26,000 Notes payable 244,000
Salaries and wages 40,000 Accounts payable 288,000
Taxes 8,000 Salaries and Wages 40,000
Admini expenses-accrued 7,440 Taxes payable 8,000
Bank Loans 180,000

Liabilities Not Liquidated Liabilities incurred/Assumed

Notes Payable 244,000 Administrative expenses 7,440
Accounts Payable 288,000
Bank loans (180-26) 154,000

Gain on realization Losses on realization:

AR (84,000-80,000) 4,000 Investment 400
MI 8,000
Totals 1,245,840 Totals 1,245,840

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Version 3
Statement of Realization and Liquidation
Assets to be Realized: Assets Realized:
AR 80,000 Investment in C/S 26,000
MI 160,000 AR 84,000
Investment in C/S 26,400 MI 152,000
Land 100,000
Bldg. 60,000
Mach and Equip 48,000
Assets Acquired -0- Assets Not Realized:
Land 100,000
Bldg. 60,000
Mach and Equip 48,000
Liabilities Liquidated: Liabilities to be Liquidated:
Bank loan 26,000 Notes payable 244,000
Salaries and wages 40,000 Accounts payable 288,000
Taxes 8,000 Salaries and Wages 40,000
Taxes payable 8,000
Bank Loans 180,000
Liabilities Not Liquidated Liabilities incurred/Assumed
Notes Payable 244,000
Accounts Payable 288,000
Bank loans (180-26) 154,000
Supplementary Debit's Supplementary Credit's
Administrative expense 7,440

Total 1,241,840 Total 1,230,000

Net Loss 11,840

Part I: Theory of Accounts

1. It refers to the extinguishment of the juridical personality of a corporation for causes expressly provided by
law.
A. Corporate liquidation
B. Corporate dissolution
C. Corporate rehabilitation
D. Corporate termination

2. It refers to process of winding up the affairs of the corporation by settling it corporate debts and distributing
the remainder to the stockholders.
A. Corporate liquidation
B. Corporate dissolution
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 C. Corporate rehabilitation
D. Corporate termination

3. After the date of corporate dissolution, what is the maximum period allowed by law to a dissolved corporation
to complete its liquidation process?
A. 1 year B. 2 years C. 3 years D. 4 years

4. What is the term used when the total stockholders’ equity has debit balance?
A. Deficit B. Deficiency C. Delinquency D. Default

5. Which of the following unsecured debts with priority shall be paid first during corporate liquidation?
A. Corporate liabilities to employees
B. Obligations arising from corporate crime
C. Corporate liabilities arising from taxes to government
D. Obligation arising from corporate tort or quasi-delict

6. Which of the following creditors can always fully recover its claim from a dissolved corporation during
corporate liquidation?
A. Fully secured creditors
B. Partially secured creditors
C. Unsecured creditors with priority
D. Unsecured creditors without priority

7. Which of the following items is not being considered in the computation of recovery percentage of unsecured
creditors without priority?
A. Assets reserved for fully secured credits
B. Assets reserved for partially secured credits
C. Unsecured portion of partially secured liabilities
D. Assets not used as collateral for any liability

Part II: Problem Solving

Use the following information for the next four (4) questions:

The following balances were ascertained in NOMONEY Corp. which is experiencing insolvency:
Cash P8,000 Accounts payable P80,000
Notes receivable 120,000 Accrued expenses 30,000
Inventories 80,000 Salaries payable 15,000
Prepaid expenses 10,000 Mortgage payable 155,000
Equipment, net 150,000 Ordinary shares 100,000
Deficit (12,000)
Total P368,000 Total P368,000

Additional information:

• Estimated net realizable value of the notes receivable was P105,000 and was pledged to the mortgage
payable.
• 80% of the book values of the inventories can be sold at P45,000 and was pledged to 60% of the accounts
payable.
• The remaining book value of the inventories have an estimated fair value of P20,000.
• 80% of the remaining unpaid accounts payable were secured by the equipment having an estimated fair value
of P60,000.
• Prepaid expenses has no estimated fair value.
• Liquidation and administration expenses were estimated in the amount of P8,000.
• Income tax payable had been accrued in the amount of P2,000 (the accountant recorded it using the accrued
expense account)
• Interest on the notes receivable and mortgage payable have not been accrued in the amount of P10,000 and
P15,000 respectively.

1. How much is the estimated deficiency?

A. P61,400 B. P40,000 C. P55,000 D. P46,400

2. How much is the estimated payment to the mortgage payable?

A. P52,400 B. P37,400 C. P31,000 D. P46,000

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3. How much is the estimated payment to the mortgage payable?
A. P137,264 B. P146,191 C. P133,453 D. P142,379

4. How much is the estimated recovery percentage to the partially secured accounts payable?
A. 97.29% B. 95.85% C. 96.28% D. 96.86%

Use the following information for the next three (3) questions:

Cagayan Company is experiencing financial problems which resulted to ultimate bankruptcy. The statement of
financial position of the entity before liquidation is presented below:
Cash P100,000 Income tax payable P200,000
Inventory 300,000 Salaries payable 300,000
Land 200,000 Note payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)

• The note payable is secured by the inventory with net realizable value of P250,000.
• The mortgage payable is secured by the land with fair value of P120,000.

5. What is the amount received by the holder of the note payable at the end of corporate liquidation?
A. P320,000 B. P300,000 C. P250,000 D. P260,000

6. What is the amount received by the holder of the mortgage payable at the end of corporate liquidation?
A. P120,000 B. P200,000 C. P150,000 D. P100,000

7. What is the amount received by the employees at the end of corporate liquidation concerning their salaries?
A. P100,000 B. P120,000 C. P72,000 D. P300,000

Use the following information for the next two (2) questions:

Bancarote Inc. is under court-supervised liquidation due to its insolvency. The court appointed liquidator has
provided the following data after conducting an inventory of Bancarote’s assets and liabilities:

• The total assets which are not used as security for any liability amounted to P5,000,000 while the total
unsecured liabilities amounted to P20,000,000.
• The total assets which are used as collateral or security for corporate obligations amounted to P10,000,000. ¾
of these assets secure a mortgage payable with book value of P2,000,000 including interest while the
remainder secure a note payable with book value of P3,500,000 including interest.
• Salaries payable amounted to P2,000,000 while taxes due government amounted to P1,000,000.

8. What is the estimated recovery percentage of unsecured creditors without priority?

A. 25% B. 37.5% C. 41.67% D. 52.5%

9. What is the amount received by partially secured creditors?

A. P2,750,000 B. P2,875,000 C. P2,916,700 D. P3,025,000

Use the following information for the next two (2) questions:

Liberty Corporation provided the following balances on July 1, 20x20:

Cash P5,500 Accounts payable P59,500
Accounts receivable 35,000 Wages payable 25,000
Inventories 60,000 Tax payable 35,000
Notes receivable 78,000 Note payable 65,000
Equipment 256,000 Mortgage payable 175,000
Share capital 120,000
Deficit (45,000)
Total P434,500 Total P434,500

In the statement of realization and liquidation the following data are ascertained for the month of July:

• The note payable and mortgage payable together with their respective interest are paid.
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• Only 7/8 is collected from the existing accounts receivable at the beginning of the month.
• Half of the inventories were sold for P45,000.
• Only P68,500 of the notes receivable is collected.
• Equipment is sold for P225,000.
• Administrative expenses of P13,800 are paid.
• Additional credit sales amounting to P10,500 are made for the remaining inventories.
• Interest not accrued for the month are note receivable P1,500, note payable P5,500 and mortgage payable
P10,500.
• All existing noncash assets at the beginning of the month are sold or collected during the month.

10. How much is the profit or loss in the statement of realization and liquidation?
A. (P42,475) B. P27,975 C. (P77,675) D. P75,175

11. How much is the estate equity at July 31, 20x20?

A. (P102,975) B. P32,525 C. P150,175 D. (P2,675)

12. Finish Corporation has been undergoing liquidation since January 1. Its condensed statement of realization
and liquidation for the month of June is presented below:

Interest received in cash on investment P10,500

Purchases on account 105,000
Liabilities liquidated 2,450,000
Assets realized 2,100,000
Payment of expenses of trustee 525,000
Liabilities to be liquidated, June 1 4,574,500
Sales on account 50,000
Assets to be realized, July 1 2,940,000
Liabilities not liquidated, June 30 2,229,500
Sales for cash 1,750,000
Assets not realized, May 31 6,650,000

What is the net gain (loss) on realization and liquidation?

A. P1,225,000 B. (P479,500) C. (P1,225,000) D. P479,500

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