No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Problem 1:
ABC Company is a financially distressed corporation with the following financial information on April
15, 2022.
Estimated
Book Values Realized
Values
Cash P 20,000 P 20,000
Accounts receivable, net 100,000 75,000
Inventories 150,000 70,000
Plant assets 250,000 280,000
Total assets P520,000

Accounts payable, unsecured P150,000

Liabilities with priority claims 80,000
Note payable 100,000
Mortgage payable 220,000
Total liabilities P550,000

Additional information:
• The note payable is secured by the accounts receivable.
• The mortgage payable is secured by the plant assets.

Required:
1. How much is the estimated deficiency to unsecured creditors?
2. How much is the expected recovery per peso of unsecured claims?

Problem 2:
ABC Company is undergoing liquidation. On January 1, 2022, its Statement of Financial Position
showed the following accounts:
ASSETS LIABILITIES AND EQUITY
Cash P150,000 Salaries payable P85,000
Accounts receivable – net 290,600 Accounts payable 120,700
Inventory 50,000 Mortgage payable 428,000
Prepaid expense 10,400 Loan payable 130,000
Building 380,000 Notes payable 84,300
Goodwill 80,000 Ordinary shares 170,000
Deficit (57,000)
TOTAL P961,000 TOTAL P961,000

Additional information:
• The mortgage payable is secured by the building which has a realizable value of P400,000.
• Accounts payable amounting to P75,000 is secured by accounts receivable with carrying
amount of P90,600. It was determined that P9,900 additional provision for expected credit
loss must be provided for this receivable.
• The balance of the accounts receivable, which has a revised realizable value of P187,500 is
used to secure the loan payable through an assignment of receivables arrangement with a
financing company.
• Inventory is estimated to be sold for P41,200.

1|P a g e RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

• The following items are still unrecorded:

o Accrued interest on mortgage – P4,280
o Tax payable – P5,600
• Liquidation expenses are expected to amount to P11,300.

Required:
1. How much is the net free assets?
2. How much is the estimated payment to unsecured creditors without priority?
3. How much is the expected payment to partially secured creditors?
4. What is the estimated recovery percentage of fully secured creditors?

Problem 3:
The following information pertains to ABC Company immediately before liquidation:
Share capital P500,000
Share premium 350,000
Retained earnings (Deficit) (60,000)
Stockholders’ equity P790,000

It was determined that there were unrecorded liabilities of P25,000. Included in the assets of ABC
Company was goodwill from a previous business acquisition amounting to P150,000.

The following were estimated to occur during liquidation (based on net realizable values of the non-
cash assets):
• P25,000 of accounts receivable are expected to be written-off. No allowance for expected
credit losses were provided by the entity.
• Inventories will be sold at a loss of P30,000.
• Prepaid expenses of P5,000 will be written-off because these are non-transferable and non-
refundable.
• Machinery and equipment will be sold at a loss of P50,000.
• Land and buildings will be sold at a gain of P100,000.
• Liquidation and administrative expenses of P15,000 will be incurred.

REQUIRED:
1. How much is the estimated estate deficit?

Problem 4:
Bendable Company's statement of affairs shows the following information:
Estimated gain on realization of certain assets P 700,000
Estimated loss on realization of certain assets 1,000,000
Liabilities to be assumed during liquidation 500,000
Unrecorded liabilities as of date of statement of affairs 200,000
Unrecorded assets as of date of statement of affairs 750,000
Contributed capital 1,000,000
Deficit 250,000

REQUIRED:
1. How much is the amount to be recovered by each peso of capital invested by the
stockholder?

2|P a g e RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Problem 5:
The following data were taken from the statement of realization and liquidation of ABC Corporation
for the quarter ended September 30, 2022:
Assets to be realized P41,250
Assets acquired 45,000
Assets realized 52,500
Assets not realized 18,750
Liabilities to be liquidated 67,500
Liabilities assumed 22,500
Liabilities liquidated 45,000
Liabilities not liquidated 56,250
Supplementary credits 63,750
Supplementary charges 58,500

The ending balances of capital stock and retained earnings are P37,500 and P15,000, respectively.

Problem 6:
ABC Company entered into bankruptcy proceedings on September 30, 2022. Its trial balance on this
date contains the following:
Dr. (Cr.)
Cash P 500,000
Inventories 1,200,000
Property, plant and equipment (net) 2,000,000
Accounts payable (1,400,000)
Bank loan payable (3,000,000)
Estate equity/deficit 700,000

The following transactions occurred during quarter 4 of 2022:

a. Inventory with carrying value of P900,000 was sold on credit for P600,000. Only P450,000
was collected during the quarter. P20,000 receivables were written off.
b. Property, plant and equipment was used to secure the bank loan payable. An item of plant
asset with carrying value of P800,000 was sold for P500,000. The proceeds were used to
partially settle the bank loan payable.
c. An initial payment of 25 cents per peso was paid for the accounts payable.
d. Trustee fees for managing the liquidation process for the quarter amounted to P15,000.

Required:
1. How much is the net income (loss) during the liquidation process?

“He who asks is a fool for five minutes, but he who does not ask remains a fool forever.”
Chinese Proverb

3|P a g e RFERRER/RLACO/ATANG/PDEJESUS