CHAPTER-7 - 120 Chapter 7 CHAPTER 7 MULTIPLE CHOICE ANSWERS...

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120 Chapter 7 CHAPTER 7 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 7-1: c Amount realized secured by inventory P 30,000 Unsecured claim (P10,000 x 25%) __2,500 Total amount received P 32,500 7-2: d Amount realized secured by inventory P120,000 Unsecured claim (P88,000 x 75%) __66,000 Total amount received P186,000 7-3: d (P15,000,000 + P200,000) 7-4: a Realizable value: Current assets P 50,000 Land and building P240,000 Less mortgage payable _200,000 __40,000 Total 90,000 Less accounts payable _160,000 Estimated deficiency to unsecured creditors P 70,000 7-5: c Total realizable value to unsecured creditors (P90,000)/total unsecured Claims (P160,000) = 56.25% 7-6: a Free assets: Current assets P 33,000 Buildings and equipment _110,000 Total P143,000 Liabilities with priority: Administrative expenses P 20,000 Salary payable 6,000 Income taxes __8,000 Total P 34,000
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Corporation in Financial Difficulty – Liquidation 121 Free assets after payment of liabilities with priority: (P143,000 – P34,000) P109,000 Unsecured liabilities Notes payable P 30,000 Accounts payable 83,000 Bonds payable __70,000 Total P183,000 Percentage of Unsecured liabilities to be paid: P109,000 / P183,000 = 60% Payment of notes payable: Value of security (land) P 90,000 60% of remaining P30,000 __18,000 Total collected P108,000 7-7: c Free assets: Other assets P 80,000 Excess from assets pledged with secured Creditors (P116,000 – P70,000) __46,000 Total P126,000 Liabilities with priority P 42,000 Free assets after payment of liabilities with priority (P126,000 – P42,000) P 84,000 Unsecured liabilities: Excess of partially secured liabilities over pledge Assets (P130,000 – P50,000) P 80,000 Unsecured creditors _200,000 Total P280,000 Recovery percentage: P84,000 / P280,000 = 30% Payment of partially secured debt: Value of pledged assets P 50,000 30% of remaining P80,000 __24,000 Total collected P 74,000
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122 Chapter 7 7-8: a The holder of Debt Two will receive P100,000 from the sale of the pledged asset. Since the holder wants to receive P142,000 out of the total debt of P170,000, the company must be able to generate enough cash to pay off 60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of the liabilities with priority (P110,000). Unsecured liabilities: Unsecured creditors P230,000 Excess liability of Debt One in excess of pledged Asset (P210,000 – P180,000) 30,000 Excess liability of Debt Two in excess of pledged Asset (P170,000 – P100,000) __70,000 Total unsecured liabilities P330,000 Necessary percentage ____60% Cash needed for these liabilities P198,000 In order for the holder of Debt Two to received exactly P142,000, the other free assets must be sold for P308,000. With that much money, the liabilities with priority (P110,000) can be paid with the remaining P198,000 going to the unsecured debts of P330,000. This 60% figure would insure that the holder of Debt Two would get P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets. 7-9: c Estate equity, beg. (P100,000 – P85,000) P 15,000 Loss on realization (P100,000 – P75,000) ( 25,000) Unrecorded liabilities: Interest expense P 250 Administrative expense 4,000 ( 4,250) Estate deficit P( 14,250 ) 7-10: c Total assets at net realizable value P 75,000 Fully secured liabilities (40,000) Estimated administrative expense _( 4,000) Estimated amount available P 31,000 Unsecured claims (P45,000 + P250) (45,250 ) Estimated deficiency to unsecured creditors P 14,250
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Corporation in Financial Difficulty – Liquidation 123 7-11: b Assets pledged with fully secured creditors P185,000 Fully secured creditors _130,000 55,000 Free assets _160,000 Total free assets 215,000 Less: Liabilities with priority
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CHAPTER-7 - 120 Chapter 7 CHAPTER 7 MULTIPLE CHOICE ANSWERS...

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