JAYCEELYN OLAVARIO BSA-3C ADV.

ACCTG 1

PROBLEM 3: EXERCISE
No. 1 A-C
Restating the assets & liabilities

Book Values Realizable Values

Cash 80,000 80,000
Accounts Receivable 440,000 (440,000 x .76) 334,400
Note Receivable 200,000 200,000
Interest Receivable - 20,000
Inventory 1,060,000 840,000 - 20,000 820,000
Prepaid assets 20,000 -
Land and building 5,000,000 5,200,000
Equipment, net 600,000 400,000
Total assets 7,400,000 7,054,400

Accrued expenses 442,000 442,000

Current tax payable 700,000 700,000
Accounts payable 2,000,000 2,000,000
Note payable 600,000 600,000
Loan payable 4,000,000 4,000,000
Interest payable - 30,000
Estimated admin. - 60,000
expense
7,742,000 7,832,000
Estimated
deficiency
Capital deficiency (342,000) (777,600)
Total liabilities & 7,400,000 7,054,400
equity

Classification of the assets and liabilities

ASSETS
Assets pledged to fully Realizable value Available for unsecured
secured creditors: creditors
Land and building 5,200,000
Less: Loan payable (4,000,000)
Interest payable (30,000) 1,170,000

Assets pledged to
partially secured
creditors:
Equipment, net 400,000 -
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Free assets
Cash 80,000
Accounts receivable 334,400
Note receivable 200,000
Interest receivable 20,000
Inventory 820,000
Prepaid assets - 1,454,400
Total free assets 2,624,400

LIABILITIES
Unsecured liabilities Secured and Priority Unsecured liability
with priority: claims without priority
Estimated admin. 60,000
expenses
Accrued salaries 50,000
Current tax payable 700,000
Total unsecured liability 810,000 -
with priority

Fully secured creditors:

Loan payable 4,000,000
Interest payable 30,000
4,030,000 -
Partially secured
creditors:
Note payable 600,000
Less: Equipment (400,000) 200,000

Unsecured liabilities
without priority:
Accrued expenses, net of
accrued salaries
(442,000-50,000) 392,000
Accounts payable 2,000,000 2,392,000
Total unsecured liabilities
without priority 2,592,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Estimated recovery percentage

Total free assets 2,624,400

Less: Total unsecured liabilities with priority (810,000)
Net free assets 1,814,400
Divide by: Total unsecured liabilities without priority 2,592,000
Estimated recovery percentage of unsecured creditors without
priority 70%

Total claims Recovery Estimated

percentage recovery
Unsecured with 810,000 100% 810,000
priority
Fully secured 4,030,000 100% 4,030,000
Partially secured 600,000 400K (200K x70%) 540,000
Unsecured without 2,392,000 70% 1,674,400
priority
Shareholders None 0% -
Total assets at 7,054,400
realizable values

Partially secured creditors 600,000

Less: Realizable value of collateral security – equipment (400,000)
Unsecured portion of claim 200,000
Multiply by: Estimated recovery percentage 70%
Total 140,000
Add back: Realizable value of collateral security 400,000
Estimated recovery 540,000

Alternative Solution: Estimated recovery

Total assets at realizable value 7,054,400
Less: Unsecured creditors with priority (810,000)
Fully secured creditors (4,030,000)
Realizable value of asset pledged to partially
secured creditors (equipment) (400,000)
Net free assets 1,814,400

Unsecured creditor without priority 2,392,000

Deficiency of assets pledged to partially secured
creditors (400K equipment – 600K note payable) 200,000
Total unsecured liabilities without priority 2,592,000

Estimated recovery percentage= 1,814,400 /2,592,000 = 70%

JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Statement of affairs
Big Co.
Statement of affairs
As of January 1, 20x1
Available for
Book values ASSETS Realizable values unsecured
creditors
Assets pledged to fully secured creditors:
5,000,000 Land and building 5,200,000
Loan payable (4,000,000)
Interest payable (30,000) 1,170,000

Assets pledged to partially secured creditors:

600,000 Equipment, net 400,000
Note payable (600,000) -

Free assets:
80,000 Cash 80,000
440,000 Accounts 334,400
receivable
200,000 Note receivable 200,000
- Interest receivable 20,000
1,060,000 Inventory 820,000
20,000 Prepaid assets - 1,454,400
Total free assets 2,624,400
Less: Unsecured
liability w/ priority (810,000)
Net free assets 1,814,400
Estimated
deficiency 777,600
7,400,000 2,592,000

Book values LIABILITIES AND Realizable Unsecured non-

EQUITY values priority
liabilities
Unsecured liabilities with priority:
- Administrative 60,000
expenses
50,000 Accrued salaries 50,000
700,000 Current tax payable 700,000
Total 810,000 -
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Fully secured creditors:

4,000,000 Loan payable 4,000,000
- Interest payable 30,000 -
Partially secured creditors:
600,000 Note payable 600,000
Equipment, net (400,00) 200,000

Unsecured creditors
392,000 Accrued expenses, 392,000
net of accrued
salaries
2,000,000 Accounts payable 2,000,000 2,392,000
Total unsecured 2,592,000
creditors

(342,000) Shareholders’ equity - -

7,400,000 2,592,000

No. 1 D. Recovery claim of Mr. A

P500,000 x .70 = P350,000

No. 2 A.
I. Opening Journal Entry
Jan. 1. 20x1 Cash 80,000
Accounts receivable 440,000
Notes receivable 200,000
Inventory 1,060,000
Prepaid assets 20,000
Land 1,000,000
Building 4,000,000
Equipment 600,000
Estate deficit 342,000
Accrued expenses 442,000
Current tax payable 700,000
Accounts payable 2,000,000
Note payable 600,000
Loan payable 4,000,000

II. “New” Assets and liabilities

Jan. 1, 20x1 Interest receivable-new 20,000
Estate deficit 20,000
Jan. 1, 20x1 Estate deficit 30,000
Interest payable-new 30,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

III. Transactions during 20x1

a. Cash 330,000
Estate deficit 110,000
Accounts receivable 440,000
b. Cash 200,000
Estate deficit 20,000
Note receivable 200,000
Interest receivable 20,000
c. Cash 590,000
Inventory 530,000
Estate deficit 60,000
d. Estate deficit 20,000
Prepaid assets 20,000
e. Cash 5,200,000
Land 1,000,000
Building 4,000,000
Estate deficit 200,000
f. Cash 440,000
Estate deficit 160,000
Equipment 600,000
g. Accrued expense 50,000
Cash 50,000
h. Current tax payable 700,000
Cash 700,000
i. Interest payable 30,000
Loan payable 4,000,000
Cash 4,030,000
j. Note payable 600,000
Cash 440,000
Estate deficit 160,000
k. Estate deficit 54,000
Cash 54,000

 Assets to be realized are 7,320,000 the book value of non-cash assets

transferred by Big Co. to the receiver (7.4M total assets less 80K cash)

 Assets acquired are 20,000 the unrecorded interest receivable.

 Assets realized are equal to the actual net proceeds from the conversion of
the non-cash assets into cash.
a. Collection of accounts receivable 330,000
b. Collection of interest and note 200,000
c. Sale of inventory 590,000
e. Sale of land and building 5,200,000
f. Sale of equipment 440,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Assets realized 6,760,000

 Assets are not realized are 530,000, the book value of the unsold inventory
(1,060,000 x 50%)

 Liabilities to be liquidated are 7,742,000 the book value of the liabilities

transferred by Big Co. to the receiver.

 Liabilities assumed are 30,000 the unrecorded interest payable.

 Liabilities liquidated are equal to the actual payments on the liabilities.

g. Payment for accrued salaries 50,000
h. Payment for current tax payable 700,000
i. Payment for interest and loan 4,030,000
j. Payment for note payable 440,000
Liabilities liquidated 5,220,000

 Liabilities not liquidated is equal to the book value of the unpaid liabilities:
Accrued expenses (442K – 50K accrued salaries) 392,000
Accounts payable 2,000,000
Liabilities not liquidated 2,392,000

 Supplementary expense is 27,000 the administrative expenses paid during

the period.

 There is no supplementary income during the period.

 The net gain (loss) during the period is computed as follows:

Debits Credits
Assets to be realized 7,320,000 6,760,000 Assets realized
Assets acquired 20,000 530,000 Assets not realized
Liabilities liquidated 5,220,000 7,742,000 Liabilities to be liquidated
Liabilities not liquidated 2,392,000 30,000 Liabilities assumed
Supplementary expenses 54,000 - Supplementary income
Totals 15,006,000 15,062,000 Totals
Net gain 56,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

B. Statement of realized and liquidation

Big Co. in receivership

Statement of Realization and Liquidation
For the six months ended June 30, 20x1

ASSETS
Assets to be realized: Assets realized:
Accounts receivable 440,000 Accounts receivable 330,000
Note receivable 200,000 Note receivable 180,000
Inventory 1,060,000 Interest receivable 20,000
Prepaid assets 20,000 Inventory 590,000
Land and building 5,000,000 Land and building 5,200,000
Equipment, net 600,000 Equipment, net 440,000
Total 7,320,000 Total 6,760,000

Assets acquired: Assets not realized:

Interest receivable 20,000 Inventory 530,000

LIABILITIES
Liabilities liquidated: Liabilities to be liquidated:
Accrued expenses 50,000 Accrued expenses 442,000
Current tax payable 700,000 Current tax payable 700,000
Interest payable 30,000 Accounts payable 2,000,000
Loan payable 4,000,000 Loan payable 4,000,000
Note payable 440,000 Note payable 600,000
Total 5,220,000 Total 7,742,000

Liabilities not liquidated: Liabilities assumed:

Accrued expenses 392,000 Interest payable 30,000
Accounts payable 2,000,000
Total 2,392,000

SUPPLEMENTARY ITEMS
Supplementary expenses: Supplementary income:
Administrative expenses 54,000 Administrative expenses -
Net gain during the period 56,000 Net gain during the period -
15,062,000 15,062,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Additional analysis and reconciliation

Breakdown of net gain using T-accounts:

NON-CASH ASSETS
Assets to be realized 7,320,000 6,760,000 Assets realized
Assets acquired 20,000 530,000 Assets not realized
Total 7,340,000 7,290,000 Total
50,000 Net loss on sale

LIABILITIES
Liabilities liquidated 5,220,000 7,742,000 Liabilities to be liquidated
Liabilities not liquidated 2,392,000 30,000 Liabilities assumed
Total 7,612,000 7,772,000 Total
Net gain on 160,000
settlement

Supplementary items
Supplementary expenses 52,000 Supplementary income
27,000 Loss-net expenses

C. Ending balance of cash

Cash
Beg. bal 80,000
Assets realized 6,760,000 5,220,000 Liabilities liquidated
54,000 Administrative expenses
1,566,000

D. Ending balance of the estate deficit account and make reconciliation for the
computed cash balance
Estate deficit
1/1/x1, opening bal 342,000
1/1/x1, new liability 30,000 20,000 1/1/x1, new asset
110,000
20,000 60,000
20,000 200,000
160,000 160,000
54,000
296,000 End.-deficit (debit
balance)

ASSETS = LIABILITIES + EQUITY

Cash 1,566,000 Liabilities not liquidated 2,392,000
Assets not realized 530,000 Estate deficit (296,000)
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Total Total 2,096,000

2,096,000
PROBLEM 5: FOR CLASSROOM DICUSSION

Restating the assets & liabilities

Carrying amounts Realizable Values

Cash 200,000 200,000
Accounts Receivable 500,000 450,000
Equipment, net 600,000 150,000
Land 1,000,000 1,300,000
Total assets 2,300,000 2,100,000

Accounts payable 700,000 700,000

Salaries payable 800,000 800,000
Note payable 500,000 500,000
Loan payable 750,000 750,000
Estimated admin. expense - 180,000
2,750,000 2,930,000
Estimated
deficiency
Capital deficiency (450,000) (830,000)
Total liabilities & 2,300,000 2,100,000
equity

Classification of the assets and liabilities

ASSETS
Assets pledged to fully Realizable value Available for unsecured
secured creditors: creditors
Land 1,300,000
Less: Loan payable (750,000) 550,000

Assets pledged to
partially secured
creditors:
Equipment, net 150,000 -

Free assets
Cash 200,000
Accounts receivable 450,000 650,000
Total free assets 1,200,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

LIABILITIES
Unsecured liabilities Secured and Priority Unsecured liability
with priority: claims without priority
Estimated admin. expenses 180,000
Salaries payable 800,000
Total unsecured liability 980,000 -
with priority

Fully secured creditors:

Loan payable 750,000 -

Partially secured
creditors:
Note payable 500,000
Less: Equipment (150,000) 350,000

Unsecured liabilities
without priority:
Accounts payable 700,000 700,000
Total unsecured liabilities 1,050,000
without priority

Estimated recovery percentage

Total free assets 1,200,000

Less: Total unsecured liabilities with priority (980,000)
Net free assets 220,000
Divide by: Total unsecured liabilities without priority 1,050,000
Estimated recovery percentage of unsecured creditors without
priority 21%

Total claims Recovery Estimated

percentage recovery
Unsecured with 980,000 100% 980,000
priority
Fully secured 750,000 100% 750,000
Partially secured 500,000 150K (350K x21%) 223,500
Unsecured without 700,000 21% 147,000
priority
Shareholders None 0% -
Total assets at 2,100,000
realizable values
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Partially secured creditors 500,000

Less: Realizable value of collateral security – equipment (150,000)
Unsecured portion of claim 350,000
Multiply by: Estimated recovery percentage 21%
Total 73,500
Add back: Realizable value of collateral security 400,000
Estimated recovery 223,500

Alternative Solution: Estimated recovery

Total assets at realizable value 2,100,000
Less: Unsecured creditors with priority (980,000)
Fully secured creditors (750,000)
Realizable value of asset pledged to partially
secured creditors (equipment) (150,000)
Net free assets 220,000

Unsecured creditor without priority 700,000

Deficiency of assets pledged to partially secured
creditors (400K equipment – 600K note payable) 350,000
Total unsecured liabilities without priority 1,050,000

Estimated recovery percentage= 220,000 / 1,050,000

Statement of affairs
Bye Bye Co.
Statement of affairs
As of January 1, 20x1
Available for
Book values ASSETS Realizable values unsecured
creditors
Assets pledged to fully secured creditors:
1,000,000 Land 1,300,000
Loan payable (750,000) 550,000

Assets pledged to partially secured creditors:

600,000 Equipment, net 150,000
Note payable (500,000) -

Free assets:
200,000 Cash 200,000
500,000 Accounts
receivable 450,000 650,000
Total free assets 1,200,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Less: Unsecured
liability w/ priority (980,000)
Net free assets 220,000
Estimated
deficiency 830,000
2,300,000 1,050,000

Book values LIABILITIES AND Realizable Unsecured non-

EQUITY values priority
liabilities
Unsecured liabilities with priority:
- Administrative 180,000
expenses
800,000 Salaries payable 800,000
Total 980,000 -

Fully secured creditors:

750,000 Loan payable 750,000

Partially secured creditors:

500,000 Note payable 500,000
Equipment, net (150,00) 350,000

Unsecured creditors
700,000 Accounts payable 700,000 700,000
Total unsecured 1,050,000
creditors

(450,000) Shareholders’ equity - -

2,300,000 1,050,000

E. Recovery claim of Mr. A

500,000 x 21% = 105,000

No. 2 A.
I. Opening Journal Entry
Jan. 1. 20x1 Cash 200,000
Accounts receivable 500,000
Equipment 600,000
Land 1,000,000
Estate deficit 450,000
Accounts payable 700,000
Salaries payable 800,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

Note payable 500,000

Loan payable 750,000
II. “New” Assets and liabilities
Jan. 1, 20x1 Estate deficit 30,000
Interest payable-new 30,000

III. Transactions during 20x1

Cash 280,000
Estate deficit 220,000
Accounts receivable 500,000
Cash 150,000
Estate deficit 450,000
Equipment 600,000
Cash 1,500,000
Land 1,000,000
Estate deficit 500,000
Accounts payable 350,000
Cash 350,000
Salaries payable 200,000
Cash 200,000
Interest payable 30,000
Loan payable 750,000
Cash 780,000
Note payable 500,000
Cash 40,000
Estate deficit 460,000
Estate deficit 240,000
Cash 240,000

 Assets to be realized are 2,100,000 the book value of non-cash assets

transferred by Bye Bye Co. to the receiver (2.3K total assets less 200K cash)

 Assets realized are equal to the actual net proceeds from the conversion of
the non-cash assets into cash.
Collection of accounts receivable 280,000
Sale of land 1,500,000
Sale of equipment 150,000
Assets realized 1,930,000

 Liabilities to be liquidated are 2,750 the book value of the liabilities

transferred by Bye Bye Co. to the receiver.

 Liabilities assumed are 30,000 the unrecorded interest payable.

JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

 Liabilities liquidated are equal to the actual payments on the liabilities.

Payment for Salaries 200,000
Payment for account 350,000
Payment for loan 750,000
Payment for interest 30,000
Payment for note payable 40,000
Liabilities liquidated 1,370,000

 Liabilities not liquidated is equal to the book value of the unpaid liabilities:
Accrued expenses (800K – 200K accrued salaries) 600,000
Accounts payable 350,000
Liabilities not liquidated 950,000

 Supplementary expense is 240,000 the administrative expenses paid

during the period.

 There is no supplementary income during the period.

 The net gain (loss) during the period is computed as follows:

Debits Credits
Assets to be realized 2,100,000 1,930,000 Assets realized
Liabilities liquidated 1,370,000 2,750,000 Liabilities to be liquidated
Liabilities not liquidated 950,000 30,000 Liabilities assumed
Supplementary expenses 240,000 - Supplementary income
Totals 4,660,000 4,710,000 Totals
Net gain 50,000
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

B. Statement of realized and liquidation

Bye Bye Co. in receivership

Statement of Realization and Liquidation
For the six months ended June 30, 20x1

ASSETS
Assets to be realized: Assets realized:
Accounts receivable 200,000 Accounts receivable 280,000
Equipment, net 600,000 Equipment, net 150,000
Land 1,000,000 Land 1,500,000
Total 2,100,000 Total 1,930,000

LIABILITIES
Liabilities liquidated: Liabilities to be liquidated:
Accounts payable 350,000 Accounts payable 700,000
Salaries payable 200,000 Salaries payable 800,000
Interest payable 30,000 Note payable 500,000
Note payable 40,000 Loan payable 750,000
Loan payable 750,000 Total 2,750,000
Total 1,370,000

Liabilities not liquidated: Liabilities assumed:

Accounts payable 350,000 Interest payable 30,000
Salaries payable 600,000
Total 950,000

SUPPLEMENTARY ITEMS
Supplementary expenses: Supplementary income:
Administrative expenses 240,000 Administrative expenses -
Net gain during the period 50,000 Net gain during the period -
4,710,000 4,710,000

Additional analysis and reconciliation

Breakdown of net gain using T-accounts:

NON-CASH ASSETS
Assets to be realized 2,100,000 1,930,000 Assets realized
Total 2,100,000 1,930,000 Total
170,000 Net loss on sale
JAYCEELYN OLAVARIO BSA-3C ADV. ACCTG 1

LIABILITIES
Liabilities liquidated 1,370,000 2,750,000 Liabilities to be liquidated
Liabilities not liquidated 950,000 30,000 Liabilities assumed
Total 2,320,000 2,780,000 Total
Net gain on 460,000
settlement

Supplementary items
Supplementary expenses 240,000 Supplementary income
240,000 Loss-net expenses

C. Ending balance of cash

Cash
Beg. bal 200,000
Assets realized 1,930,000 1,370,000 Liabilities liquidated
240,000 Administrative expenses
520,000

D. Ending balance of the estate deficit account and make reconciliation for the
computed cash balance
Estate deficit
1/1/x1, opening 450,000
bal
1/1/x1, new 30,000
liability 220,000
450,000 500,000
240,000 460,000
430,000 End.-deficit (debit balance)

ASSETS = LIABILITIES + EQUITY

Cash 520,000 Liabilities not liquidated 950,000
Estate deficit (430,000)
Total 520,000 Total 520,000