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ACCTG 7 – Advanced Accounting 1

Lesson 1: Corporate Liquidation


Problem 1

The Ended Corporation is undergoing liquidation and has the following condensed Statement of
Financial Position as of December 1, 2012:
Assets Liabilities and Equity
Cash P79,490 Salaries Payable P35,000
Receivables (net) 238,560 Accounts Payable 75,950
Merchandise 56,000 Bonds Payable 280,000
Prepaid Expenses 1,750 Bank Loan Payable 154,000
Equipment (net) 241,500 Note Payable 56,000
Goodwill 38,500 Ordinary shares 84,000
Deficit (28,700)
Total Assets P656,250 P656,250

 The bonds payable is secured by the equipment having a realizable value of P252,000.
 Of the accounts payable, P42,000 is secured by 25% of the receivable which is estimated
to be 20% uncollectible. The remainder in the book value of the receivables which has a
realizable value of P164,500 is used to secure the bank loan payable.
 The merchandise has a realizable value of P37,100.
 In addition to the recorded liabilities are accrued interest on bonds payable amounting to
P2,800 and trustees expenses amounting to P1,750 and taxes P2,100.

Compute the settlement to:

1) Fully secured creditors
2) Partially secured creditors
3) Unsecured Creditors Without Priority

Problem 2

The following information are related to Terminal Corporation which is undergoing liquidation:
a) Bonds payable amounting to P368,000 is secured by Merchandise Inventory with book
value of P615,000 and net realizable value of 2/3 of the recorded amount.
b) Of the P978,000 accounts payable, P275,000 is secured by equipment with a carrying
amount of P384,000 which is 30% not realizable.
c) Building with a carrying amount of P645,000 has a net realizable value of P495,000.
d) Other unrecorded liabilities are accrued interest payable on bonds, P15,500; salaries
payable, P87,000; taxes payable, P58,000; and trustee’s fee, P42,500.
e) Cash available prior to liquidation amounts to P59,500.
f) Total assets of Terminal Corp. presented in the statement of financial position prior to
liquidation amounts to P2,400,000, except for prepaid expenses and goodwill amounting
to P38,000 and P110,000, respectively, remaining assets other than those whose
realizable values were mentioned above have a realizable value of 60% of the recorded
g) Total liabilities of Terminal Corp. presented in the statement of financial position prior to
liquidation amounts to P1,900,000.
4) Compute for the estimated deficiency to unsecured liabilities.

Problem 3

The following data were taken from the statement of realization and liquidation of Over Corp. for
the quarter ended September 30, 2017.

Liabilities to be liquidated P71,250

Supplementary charges 42,275
Liabilities not liquidated 52,500
Supplementary credits 48,125
Assets acquired 34,000
Liabilities liquidated 39,500
Assets to be realized 26,875
Assets realized 43,750
Liabilities assumed 20,750

The beginning capital balances of ordinary shares and retained earnings are P25,500 and P7,400,
respectively. A net income of P21,850 for the period.

5) How much is the ending balance of cash?

Problem 4

Period Corporation is to be liquidated and has the following liabilities:

Income taxes P140,000
Notes payable (secured by land) 150,000
Accounts payable 103,750
Salary payable 7,500
Bonds payable 87,500
Administrative expenses for liquidation 25,000

The corporation has the following assets:

Book Value Fair Value
Current assets P100,000 P41,250
Land 125,000 112,500
Building and equipment 125,000 137,500
6) How much will be paid on the notes payable?