AFAR (2.0/5.

0 – Corporate Liquidation/Home Office and Branch Accounting)

DRILL/ASSESSMENT

1. The statement of realization and liquidation was prepared for No - hope Corporation for the
three-month period ending December 31, 2021. The totals are as follows:

Assets to be realized P 55,000

Assets acquired 60,000
Assets realized 70,000
Assets not realized 25,000
Liabilities to be liquidated 90,000
Liabilities assumed 30,000
Liabilities liquidated 60,000
Liabilities not liquidated 75,000
Supplementary credits 85,000
Supplementary charges 78,000

The net income (loss) for the period must be:

a. P 7,000
b. P(35,000)
c. P(28,000)
d. P 28,000

2. A statement of realization and liquidation has been prepared for the Nopenny Corporation.
The totals are as follows:

Assets to be realized P 60,000

Assets acquired 40,000
Assets realized 55,000
Liabilities to be liquidated 80,000
Liabilities assumed 50,000
Liabilities not liquidated 65,000
Supplementary credits 110,000

Retained earnings decreased by P12,000. The ending balances of capital stock and retained
earnings are P100,000 and P(85,000), respectively.

How much was the beginning balance of cash?

a. P47,000
b. P35,000
c. P20,000
d. Not given

3. RB signed a note payable to its bank for P10,000. Accrued interest on the note on February
28, 2014 amount to P250. The note is secured by inventory with a book value of P12,000. The
inventory is sold for P8,000 and unsecured creditors receive 30% of their claims. The bank
should receive the following amount in settlement of the note and interest:

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AFAR (2.0/5.0 – Corporate Liquidation/Home Office and Branch Accounting)
DRILL/ASSESSMENT

a. P10,250
b. P10,000
c. P8,675
d. P8,000

4. JLC, Inc., purchased an automobile with little cash down and signed a note, secured by the
automobile, for 48 easy monthly payments. When the company files for insolvency, the
balance due on the automobile amounts to P120,000. The automobile has a book value of
P160,000 and a net realizable value of P80,000. The unsecured creditors of JLC, Inc. can expect
to receive 50% of their claims.

In the liquidation, the bank that holds the note on the automobile should receive:

a. P120,000
b. P100,000
c. P80,000
d. P60,000

5. Plate Co. has been forced into bankruptcy and liquidated. Unsecured claims will be paid at
the rate of P.50. Mug Co. holds a noninterest- bearing note receivable from Plate in the amount
of P100,000 collateralized by machinery with a liquidation value of P20,000. The total amount
to be realized by Mug on this note receivable is.

a. P70,000
b. P60,000
c. P50,000
d. P20,000

Next two questions are based on the following:

Deficit Company, Inc., filed a voluntary bankruptcy petition for liquidation on June 15, 2014,
and the statement of affairs reflects the following amounts:

Carrying Realizable
Value Value
Assets:
Pledged with fully secured creditors 360,000 390,000
Pledged with partially secured creditors 200,000 160,000
Free 440,000 320,000
1,000,000 870,000
Liabilities:
With Priority 90,000
Fully secured 300,000
Partially secured 240,000
Unsecured 720,000
1,350,000

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AFAR (2.0/5.0 – Corporate Liquidation/Home Office and Branch Accounting)
DRILL/ASSESSMENT

6. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash should the partially secured creditors
receive?

a. P160,000
b. P188,000
c. P200,000
d. P240,000
e. P192,000.

7. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash will be available to pay the unsecured
(nonpriority) creditors?

a. P198,000
b. P230,000
c. P288,000
d. P320,000

Next two questions are based on the following:

Quitting Comapny, Inc., filed a voluntary bankruptcy petition for liquidation on November 11,
2014, and the statement of affairs reflects the following amounts:

Carrying Realizable
Value Value
Assets:
Pledged with fully secured creditors 690,000 900,000
Pledged with partially secured creditors 210,000 150,000
Free 930,000 138,000
1,830,000 1,188,000
Liabilities:
With Priority 180,000
Fully secured 750,000
Partially secured 270,000
Unsecured 600,000
1,800,000

8. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash should the partially secured creditors
receive?

a. P150,000
b. P168,000
c. P210,000
d. P270,000

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AFAR (2.0/5.0 – Corporate Liquidation/Home Office and Branch Accounting)
DRILL/ASSESSMENT

9. Assume that the assets are converted into cash at the estimated current values and the
business is liquidated. What total amount of cash will be available to pay the unsecured
(nonpriority) creditors?

a. P90,000
b. P138,000
c. P168,000
d. P288,000
e. P108,000.

10. Vannco, Inc., is being liquidated. Unsecured creditors will be paid at the rate of P.30 on the
peso. Lendorf is owed a P70,000 noninterest-bearing note receivable from Vannco
collateralized by equipment having a book value of P60,000 and a liquidation value of
P20,000. How much will Lendorf realize on this note?
a. P15,000
b. P21,000
c. P35,000
d. P36,000
e. None of the above.

11. The income statement submitted by the Tarlac Branch to the Home Office for the month of
December 31, 2014 follows:

Sales P600,000
Less: Cost of sales
Inventory, Dec.1 P80,000
Shipments from Home Office 350,000
Purchases locally by Branch 30,000
Total available for sale P460,000
Less: Inventory, Dec. 31 100,000 360,000
Gross profit 240,000
Less: Operating expenses 180,000
Net Income P 60,000

The branch inventories consisted of:

Dec. 1 Dec. 31
Merchandise from Home Office P70,000 P 84,000
Local Purchases 10,000 16,000
Total P80,000 P100,000

After effecting necessary adjustments, the Home Office ascertained the true net income of the
branch to be P156,000.

(1) At what percentage of cost did the Home Office bill the branch for merchandise shipped
to it? and (2) What is the balance of the allowance for overvaluation in the branch inventory
at Dec. 31, 2014?

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AFAR (2.0/5.0 – Corporate Liquidation/Home Office and Branch Accounting)
DRILL/ASSESSMENT

(1) (2)
a. 100% P10,000
b. 120% P16,000
c. 140% P24,000
d. 150% P34,000

The next four questions are based on the following:

Debit Credits
Sales P300,000
Shipments from home office P168,000
Inventory, January 1 31,500
Expenses 100,000

The branch purchases all of its merchandise from the home office. Its December 31 inventory is
P28,000. The home office bills the branch at 40% above cost.

12. The branch’s net income on its own books amounts to:
a. P28,500.
b. P35,500.
c. P85,500.
d. P92,500.

13. The balance in the Shipments to Branch account on the home office books before closing
entries are posted is:
a. P142,500.
b. P120,000.
c. P111,000.
d. P100,800.

14. The balance in the Unrealized Profit in Branch Inventory account on the home office books
after closing is:
a. P20,000.
b. P11,200.
c. P 9,000.
d. P 8,000.

15. The branch profit under generally accepted accounting principles is:
a. P32,000.
b. P35,500.
c. P77,500.
d. P85,500.

End of Examination