Practice Problems Corporate Liquidation

Accounting for Special Transactions (AC14)
Practice Problems – Corporate Liquidation

Problem 1
The following information is available on June 1, 2018 to Genesis Company, which is having difficulty in
paying its liabilities as they become due:

Cash Carrying Amount
Accounts receivable, net, fair value equal to carrying amount ₱8,960
Inventories, current fair value, ₱40,320 pledged on ₱47,040 of notes payable 103,040
Machinery and equipment, net, current fair value of ₱150,976 pledged on 87,360

mortgage note payable 239,680
Office supplies, current fair value of ₱5,600 4,480
Wages payable 12,992
Taxes payable 2,688
Accounts payable
Notes payable, ₱47,040 of which is secured by inventories 134,400
Mortgage note payable 89,600
Common stock, ₱5 par
Retained earnings, deficit 112,896
224,000
133,056

Additional information:
(1) Estimated liability to the trustee is ₱58,240.
(2) A delivery van previously given to the supervisor was returned to the company, fair market value,

₱56,000.

REQUIRED:
Compute for the following:

a. Net free assets
b. Liabilities to:

1. Fully secured creditors
2. Partially secured creditors
3. Unsecured creditors with priority
4. Unsecured creditors without priority
c. Recovery percentage of unsecured liabilities without priority
d. Amount of recovery of the following:
1. Fully secured creditors
2. Partially secured creditors
3. Unsecured creditors with priority
4. Unsecured creditors without priority

Problem 2
The following data were taken from the statement of realization and liquidation of Exodus Company for
the three-month period ending December 31, 2020:

Assets to be realized 1,375,000 Assets acquired 750,000
Supplementary credits 2,800,000 Assets realized 1,200,000
Liabilities to be liquidated 2,250,000 Liabilities assumed 1,625,000
Supplementary charges 3,125,000 Assets not realized 1,375,000
Liabilities liquidated 1,875,000 Liabilities not liquidated 1,700,000

The ending balances of capital stock and retained earnings are ₱1,500,000 and ₱238,000, respectively. A
net loss of ₱738,000 was reported for the year.

REQUIRED:
Compute for the following:

a. Net gain/(loss) for the three-month period.
b. Ending balance of cash.