PROBLEM SOLVING (14 items x 5 points)

Lugi Ka Na Company has been forced into bankruptcy as of April 30 because of its inability to pay its debts.
The statement of financial position on that date shows:

ASSETS LIABILITIES & EQUITY

Cash P5,400 Accounts Payable P105,000
Accounts Receivable 78,700 Notes Payable – PNB 30,000
Note Receivable 37,000 Notes Payable – suppliers 102,500
Inventory 175,700 Accrued wages 3,700
Prepaid Expenses 1,900 Accrued taxes 9,300
Land and Building 122,500 Mortgage Bonds Payable 180,000
Equipment, net 97,600 Common stock – P100 par 150,000
Retained Earnings (61,700)
Total Assets P518,800 Total Liabilities & Equity P518,800

Additional information:
a. Accounts receivable of P32,220 and notes receivable of P25,000 are expected to be collectible. The good
notes are pledged to Philippine National Bank.
b. Inventories are expected to bring in P90,200 when sold under bankruptcy conditions.
c. Land and buildings have an appraised value of P190,000. They serve as security on the bonds.
d. The current value of the equipment, net of disposal cost is P18,000.
e. Estimated legal and accounting fees for the liquidation are P2,000.
f. Unrecorded interest on notes payable to supplier amounts to P1,000.

Using the above data, compute the following:

1. Total free assets
Cash 5,400.00
Accounts Receivable 32,220.00
Inventory 90,200.00
Land & Building 10,000.00
Equipment 18,000.00
Total Free Assets ₱ 155,820.00

2. Net free assets

Total Free Assets ₱ 155,820.00
Less: Unsecured liabilities with priority
Accrued wages ₱ 3,700.00
Accrued taxes 9,300.00
Legal & Accounting fees 2,000.00 15,000.00

Net Free Assets ₱ 140,820.00

04 Quiz 1 *Property of STI

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3. Unsecured liabilities with priority
Accrued wages ₱ 3,700.00
Accrued taxes 9,300.00
Legal and Accounting fees 2,000.00
Unsecured liabilities with priority ₱ 15,000.00

4. Unsecured liabilities without priority

Accounts payable ₱ 105,000.00

Notes Payable - suppliers 102,500.00
Interest on Notes payable - suppliers 1,000.00

Unsecured liabilities without priority ₱ 208,500.00

5. Estimated recovery percentage

Unsecured Liabilities without priority ₱ 208,500.00
Notes payable ₱ 30,000.00
Less: Notes receivable (25,000.00) 5,000.00
Total unsecured liabilities without priority ₱ 213,500.00

Net Free assets 140,820.00

divide: total unsecured liabilities without priority 213,500.00
Estimated recovery percentage 65.96%

6. Net gain (loss) on realization

Cash P 5,400.00
Accounts receivable 32,220.00
Notes Receivable 25,000.00
Inventory 90,200.00
Land & Building 190,000.00
Equipment 18,000.00
less: total book value of assets (518,800.00)
Net gain (loss) on realization (₱ 157,980.00)

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7. Estimated deficiency
Unsecured liabilities without priority ₱ 208,500.00
Unsecured portion of partially secured liabilities 5,000.00
Total Unsecured liabilities without priority 213,500.00
less: Net free assets (140,820.00)
Estimates Deficiency ₱ 72,680.00

8. Net income (loss) on realization and liquidation

Loss on realization ₱ 72,680.00
less: Unrecorded interest on Notes payable (1,000.00)
Estimated legal and accounting fees (2,000.00)
Net income (loss) on realization and liquidation ₱ 69,680.00

9. Amount paid to partially secured creditors

Realizable value of uncollectible assets ₱ 25,000.00

Unsecured portion of partially secured liabilities ₱ 5,000.00

Multiply by: Recovery Percentage 65.96% 3,298.00

Amount paid to partially secured creditors ₱ 28,298.00

10. Amount paid to unsecured creditors without priority

Accounts payable ₱ 105,000.00
Notes receivable - Suppliers 102,500.00
Interest on notes payable - suppliers 1,000.00
Total 208,500.00
Multiply: Recovery Percentage 65.96%
Amount paid to unsecured creditors without priority ₱ 137,526.60

11. Total estimated payment to creditors

Amount paid to partially secured creditors ₱ 28,298.00

Amount paid to unsecured creditors with priority 15,000.00
Amount paid to unsecured creditors without priority 137,526.60
Amount paid to fully secured creditors 180,000.00
Total estimated payment to creditors ₱ 360,824.60

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12. Total payment to unsecured creditors

Amount paid to unsecured creditors with priority ₱ 15,000.00

Amount paid to unsecured creditors without priority 137,526.60

Total payment to unsecured creditors ₱ 152,526.60

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The following data were taken from the statement of realization and liquidation of Bagsak Corporation for the
three-month period ended December 31:

Assets to be realized P220,000 Liabilities assumed P120,000

Assets acquired 240,000 Liabilities liquidated 240,000
Assets Realized 280,000 Liabilities not liquidated 300,000
Assets not realized 100,000 Supplementary credits 340,000
Liabilities to be liquidated 360,000 Supplementary charges 312,000

Based on the above data, compute the following:

13. Net income (loss) for the period
Assets acquired 240,000.00 280,000.00 Assets realized
Assets to be realized 220,000.00 100,000.00 Assets not realized
Liabilities liquidated 240,000.00 360,000.00 Liabilities to be liquidated
Liabilities not liquidated 300,000.00 120,000.00 Liabilities assumed
Supplementary Expenses 312,000.00 340,000.00 Supplementary income
1,312,000.00 1,200,000.00
Net Loss for the period (₱ 112,000.00)

14. Gain (loss) on realization

Assets Dr. Cr. Gain (Loss)
Assets acquired 240,000.00
Assets to be realized 220,000.00
Assets realized 280,000.00
Assets not realized 100,000.00
460,000.00 380,000.00 (₱ 80,000.00)

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