Multiple Choice Problems

1. d – since there is parent and subsidiary relationship, any intercompany accounts are eliminated from consolidated
point of view.

2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available; P91,000 – (P4,500 +
P10,000) = P76,500 estimated amount available for unsecured, non-priority creditors; P76,500 ¸ P90,000 =
0.85]

3. c – it is a partially secured liability

4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000

5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000

6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000

7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000

8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P126,000

9. d

10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000

11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000)

= P93,000

12. c – P93,000/P121,000 = 77% rounded.

13. a
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 – P300,000) + P600,000 = P700,000

14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes P80,000 + Liq.
expenses P40,000 = P165,000.

33. c

Statement of Realization and Liquidation

Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000

Assets Acquired……………….. 750,000 Assets Not Realized…………… 1,375,000
Liabilities Liquidated…………. 1,875,000 Liabilities to be Liquidated…. 2,250,000
 Liabilities Not Liquidated……. 1,700,000 Liabilities Assumed………….. 1,625,000
Supplementary charges/ Supplementary credits……… 2,800,000
debits……………………… 3,125,000

P 8,825,000 P 9,250,000

Net Gain……………………….. P 425,000

34. c
Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000

+: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000

Total LSHE = Total Assets…………………………………………………………… P 2,700,000

-: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000

Cash balance, ending………………………………………………………………P1,325,000

18. P440,000
Total Free Assets:

Fully secured:
Land and building: P650,000 – (P300,000 + P20,000) = P 330,000

Free assets:

Cash 10,000

Equipment 100,000 P

440,000

Or,
Total estimated proceeds P910,000
Less asset proceeds claimed by secured
creditors:

Notes payable and interest (from

proceeds of receivables and inventory) P150,000
Mortgage payable and interest (from
proceeds of land and building) 320,000 470,000
Total available to unsecured claimants/total free P440,000

19. P410,000
Total available to unsecured claimants/total free P440,000
Less distributions to unsecured claims
with priority:
Wages payable P 10,000
Taxes payable 20,000 30,000
Amount available for unsecured
 claims/net free assets P410,000

20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), or

Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000) P380,000
Accounts payable 260,000
Total claims of unsecured creditors P640,000

21. 64.1%
Dividend to unsecured creditors
P410,000 ÷ P640,000 = 64.1%

22. P320,000 = P300,000 + P20,000

23. P393,580
Unsecured portion of notes payable and
interest P380,000
Dividend on unsecured amount x 64.1%
Amount received on unsecured portion P243,580
Proceeds from receivables and inventory 150,000
Total Received P393,580
Dividend to note holders: P393,580 ÷ P530,000 = 74.3%

24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to rounding-off)
27. P230,000

Net free assets (No. 19) P410,000

Less: Unsecured creditors without priority (No. 20) 640,000

P230,000
28. P340,000 = P910,000 – P1,250,000

29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)

30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is the formal
presentation of statement of affairs

Estimated Net Estimated Amt Avail Estimated Gain or

Realizable for Unsecured (Loss)on
Value Creditors Liquidation

Book
Value
Assets
 Assets pledged with fully secured creditors:
98,500 Land and Bldg 92,800 22,200 (5,700)
5,800 Investment in Calandir 15,000 4,625 9,200
Total 107,800
Assets pledged with partially secured
creditors:
41,000 Inventory 20,000 (21,000)
43,000 Equipment 8,000 (35,000)
Free Assets:
1,850 Cash 1,850 1,850 0
21,200 Accounts Rec 17,000 17,000 (4,200)
15,000 Note Rec 15,000 15,000 0
Estimated Amount Avail for unsecured creditors with and
without priority 60,675
Less unsecured creditors with priority (3,775)
Estimated amounts for unsecured creditors without priority
(Net Free Assets):
Net Realizable Amount Avail 56,900
_______ Deficiency _______ 15,725 _______
226,350 169,650 72,625 (56,700)

Estimated Estimated Unsecured Amount

Book Liabilities Secured With Without
Value and Owners Equity Amount Priority Priority
Fully Secured Creditors:
600 Accrued Mtg Interest 600
70,000 Mortgage Payable 70,000
375 Accrued N/P Interest 375
10,000 Note Payable 10,000
Total 80,975
Partially Secured
Creditors:
50,000 Accounts Payable 28,000 22,000
Unsecured Creditors with
Priority:
3,775 Accrued Payroll 3,775
Unsecured creditors without
Priority:
40,625 Accounts Payable 40,625
10,000 Other Accrued Liabilities _______ 10,000
185,375 Totals 108,975 3,775 72,625
40,975 Owner Equity
226,350

31. P56,900 – refer to No. 30 for computation

32. P72,625 – refer to No. for computation
33. Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation
34. P80,975 – refer to No. 30 for computation
35. P45,160 = P28,000 + (P22,000 x 78%)
36. P3,775
37. P39,487.50 = 78% x (P40,625 + P10,000)

38. P169,397.50
No. 34……………..P 80.975
No. 35…………….. 45,160
No. 36…………….. 3,775
No. 37…………….. 39,487.50

P169,397.50 (discrepancy around P250 plus due to rounding-off)

39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity

40. P56,700 – refer to No. 30 or P169,650 – P226,350

41. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)
42. P22,475
Liabilities
Unsecured
Assets Fully Partial With Without Owners'
Cash Noncash Secured Secured Priority Priority Equity
6/1/x5 Balances:
1,850 224,500 80,975 50,000 3,775 50,625 40,975

Cash Receipts:
Securities Sale 16,000 (5,800) 10,200
N/R Collected 15,000 (15,000) 0
Equipment Sale 7,000 (43,000) (36,000)
Inventory Sale 22,000 (41,000) (19,000)
Cash Disbursements:
Bank Loan (10,375) (10,375)
Part Pyt-A/P (29,000) ---------- --------- (50,000) ------- 21,000 ----------

6/30 Balance 22,475 119,700 70,600 0 3,775 71,625 (3,825)

43. P119,700 – refer to No. 42

44. P70,600 – refer to No. 42
45. None – refer to No. 42
46. P3,775 – refer to No. 42
47. P71,625 – refer to No. 42
48. (P3,825) deficit – refer to No. 42

49. P150,900
 Estimated
Amount
Estimated Net Available for Estimated Gain
Realizable Unsecured or (Loss) on
Book Value Assets Value Creditor Liquidation
Assets pledged with fully secured creditors:
57,000 Accounts receivable (net) 45,000 12,600 (12,000)
174,000 Land, plant and equipment (net) 150,000 77,400 (24,000)
Total 195,000
Free assets:
6,000 Notes receivable 6,000 6,000 0
900 Accrued interest receivable 900 900 0
90,000 Inventories (90,000 x 60%) 54,000 54,000 (36,000)
Estimated amount available for unsecured
creditors with and without priority 150,900
Less unsecured creditors with priority (26,900)
Estimated amounts for unsecured creditors
without priority:
Net realizable amount available 124,000
Deficiency 26,000
327,900 Totals 255,900 150,000 (72,000)

Estimated Estimated Unsecured Amount

Secured Amount
With Priority Without Priority
Book Value Liabilities and Owners' Equity
Fully secured creditors:
3,600 Accrued interest 3,600
69,000 Note payable 69,000
2,400 Accrued interest 2,400
30,000 Note payable 30,000
Total 105,000
Unsecured creditors with priority:
24,900 Wages payable 24,900
0 Administration fees – accountant’s fee 2,000
Unsecured creditors without priority:
0 Accrued interest 0
18,000 Cash overdraft 18,000
6,000 Notes payable 6,000
126,000 Accounts payable -------- -------- 126,000
279,900 Totals 105,000 26,900 150,000
48,000 Owners' equity--see Note A
327,900
Note A: Includes the effect of the P2,000 professional fee.

50. P124,000 – refer to No. 49

51. P150,000–
52. 82.67% = P124,000/P150,000
53. P105,000
54. None
55. P26,900
56. P124,005 = P150,000 x 82.67%
57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)
58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,000
59. P72,000 – refer to No. 49
60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses