27270179-Corporate-Liquidation-and-Joint-Venture-October-2008

27270179-Corporate-Liquidation-and-Joint-Venture-October-2008

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CORPORATE LIQUIDATION I The D Corporation, which is undergoing liquidation, has the following condensed balance sheet as of July 1, 2008: Assets Liabilities and Shareholders’ Equity Cash P 396,000 Salaries Payable P120,000 Receivables(net) 924,000 Accounts Payable 300,000 Inventory 231,000 Bonds Payable 270,000 Prepaid Expenses 3,000 Bank Loan Payable 1,200,000 Equipment (net) 900,000 Note Payable 594,000 Goodwill 120,000 Ordinary shares 240,000 D e f i c i t ( 1 5 0 , 0 0 0 ) ________ ________ Total P2,574,000 Total P2,574,000 The bank loan payable is secured by the equipment having a book value of P900,000 and a realizable value of P1,050,000. Of the accounts payable, P140,000 is secured by inventory which has a cost of P120,000 and a liquidation value of P132,000. The balance of the inventory has a realizable value of P70,000. Receivables with a book value and realizable value of P624,000 and P600,000 respectively have been pledged as collateral on the note payable. The balance of the receivable is estimated to be 60% collectible. In addition to the recorded liabilities are accrued interest on bank loan payable amounting to P30,000, accrued interest on the bonds payable amounting to P18,000, trustee’s fee amounting P25,000 and taxes payable amounting to P21,000. Prepare a Statement of Affairs in July Solution: BV NRV Classification Cash 396,000 396,000 Unpledged assets Receivables (net) 924,000 600,000 Assets pledge to Fully Secured Creditors Receivables (net) 180,000 Unpledged assets Inventory 231,000 132,000 Assets pledge to Partially Secured Creditors Inventory 70,000 Unpledged assets Prepaid Expenses 3,000 - Unpledged assets Property and Equipme 900,000 1,050,000 Assets pledge to Partially Secured Creditors Goodwill 120,000 - Unpledged assets Salaries Payable 120,000 120,000 Priority Creditors Accounts Payable 300,000 140,000 Partially Secured Creditors Accounts Payable 160,000 Unsecured Creditors Bonds Payable 270,000 270,000 Unsecured Creditors Interest Payable 18,000 Unsecured Creditors Bank Loan Payable 1,200,000 1,200,000 Partially Secured Creditors Interest Payable 30,000 Partially Secured Creditors Note Payable 594,000 594,000 Fully Secured Creditors Ordinary shares 240,000 Deficit (150,000) (150,000) Squeeze Taxes Payable 21,000 Priority Creditors Trustees Expenses 25,000 Priority Creditors Total - - Assets Free Portion < Liabilities Unsecured Priority Deficiency APFSC-FSC 6,000 < PSC-APPSC 188,000 Unpledged Assets 646,000 < Unsecured Creditors 448,000 < Priority Creditors 166,000 Total Free Assets 652,000 < 636,000 166,000 (150,000) Squeeze Recovery Rate = Available Assets / Unsecured Creditors Recovery Rate = (652-166) / 636 Recovery Rate = 0.76 Fully Secured Creditors = 100% of amount owed FSC 594,000 Priority Creditors = 100% of amount owed to Priority Creditors 166,000 Partially Secured Creditors = 100% of APPSC + ((PSC-APPSC) x Rec. Rate) 1,325,660 Unsecured Creditors = 100% of amount owed to Unsecured Creditors x Rec. Rate 342,340
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27270179-Corporate-Liquidation-and-Joint-Venture-October-2008

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