Drill Corporate Liquidation

Exercise 1
Archery Corporation is liquidating under the Bankruptcy Act. The accounts of Archery at the time of
filing are summarized as follows:
Estimated
Realizable
Book Value Value
Cash $ 10,000 $ 10,000
Accounts receivable-net 60,000 50,000
Inventory 110,000 70,000
Equipment-net 70,000 70,000
Land 20,000 40,000
Building-net 200,000 150,000
Goodwill 42,000
$ 512,000
Accounts payable $ 120,000

Wages and salaries 30,000
Contributions due to pension plan 20,000
Taxes payable 80,000
Accrued interest payable (includes 12,000
$10,000 from the mortgage payable and
$2,000 from the note payable)
Note payable 100,000
Mortgage payable 100,000
Capital stock 70,000
Deficit ( 20,000 )
$ 512,000
The land and building are pledged as security for the mortgage payable as well as any accrued interest on
the mortgage. The note payable is secured with the equipment, but the interest on the note is unsecured.
Wages and salaries were accrued within the last 90 days and pension plan contributions were accrued
within the last 6 months; neither exceeds $4,000 per employee. Liquidation expenses are expected to be
$50,000.
Required:
1. Prepare a schedule showing the priority rankings of the

creditors and the expected payouts.
2. Banyo Corporation was a supplier to Archery Corporation and at the time of Archery’s
bankruptcy filing, Banyo’s account receivable from Archery was $40,000. On the basis of the
estimates, how much can Banyo expect to receive?
Exercise 2
Hinsch Company is in bankruptcy and is being liquidated under the provisions of the bankruptcy code.
The trustee has converted all assets into $120,000 cash and has prepared the following list of approved
claims:
Customer deposits ($1,000 from each of two customers

that ordered products that were never delivered) $ 2,000
Property taxes payable 4,000
Accounts payable, unsecured 30,000
Trustee’s fees and other costs of liquidation 16,000
Mortgage payable, secured by property that was for sold $80,000

60,000
Note payable to bank, secured by all accounts receivable of which

$30,000 were collected and $10,000 were written off as uncollectible
30,000
Required:
How much will the bank receive on the note payable?
Exercise 3
Ingham Corporation is being liquidated under the Bankruptcy Act. The trustee has determined that the
unsecured claims will receive $.30 on the dollar. Platinum Corporation holds a $35,000 mortgage note
receivable from Ingham that is secured by equipment with a $17,500 book value and a $7,000 fair value.
Required:
How much of the mortgage receivable will be recovered by Platinum?

Exercise 4
Buckley Corporation incurred major losses in 2005 and entered into voluntary bankruptcy in the early part of
2006. By July 1, all assets were converted into cash, the secured creditors were paid, and $74,000 in cash was left
to pay the remaining claims as follows:
Accounts payable $ 22,000

Claims prior to the trustee’s appointment 4,000
Property taxes payable 7,500
Wages payable (all under $4,000 per employee) 21,000
Unsecured note payable 28,000
Accrued interest on the note payable 3,000
Administrative expenses of the trustee 15,000
Total $ 100,500
Required:
Classify the claims by priority ranking, and analyze which amounts will be paid and which
amounts will be written off.
Exercise 5
Jones Corporation is being liquidated under the Bankruptcy Act. The trustee has determined that the unsecured
claims will receive $.50 on the dollar. Kevin Corporation holds a $200,000 mortgage note receivable from Jones
that is secured by marketable securities with a $150,000 book value and a $164,000 fair value.
Required:
How much of the mortgage receivable will Kevin recover?
LO2
Exercise 6
Kresta Corporation is being liquidated under the Bankruptcy Act. The trustee has determined that the unsecured
claims will receive $.25 on the dollar. Loanstar Corporation holds an
$80,000 mortgage note receivable from Kresta that is secured by marketable securities with an $88,000 book value
and a $60,000 fair value.
Required:
How much of the mortgage receivable will Loanstar recover?

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Exercise 1

Accounts payable $ 120,000

1. Prepare a schedule showing the priority rankings of the

Customer deposits ($1,000 from each of two customers

Property taxes payable 4,000

Accounts payable, unsecured 30,000

Trustee’s fees and other costs of liquidation 16,000

Mortgage payable, secured by property that was for sold $80,000

Note payable to bank, secured by all accounts receivable of which

How much will the bank receive on the note payable?

How much of the mortgage receivable will be recovered by Platinum?

Accounts payable $ 22,000

amounts will be written off.

How much of the mortgage receivable will Kevin recover?

How much of the mortgage receivable will Loanstar recover?

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