1) Kline Corporation incurred major losses in 2011 and entered into voluntary Chapter
7 bankruptcy in the early part of 2012 . By July 1, all assets were converted into cash,
the secured creditors were paid, and $122,700 in cash was left to pay the remaining
claims as follows:
Accounts payable$37,000
Claims incurred between the date of filing an involuntary5,000
petition and the date an interim trustee is appointed
Property taxes payable8,000
Wages payable (all under $10,000 per employee; 74,000
earned within 90 days of filing bankruptcy petition)
Unsecured note payable19,000
Accrued interest on the note payable2,000
Administrative expenses of the trustee12,180
Total$157,180
Required:
Classify the claims by their Chapter 7 priority ranking, and analyze which amounts will
be paid and which amounts will be written off.
2) Prepare journal entries in an Internal Service Fund of Union County to record each of
the following transactions.
1>Purchased equipment on September 1, 2011 by paying $25,000 down and borrowing
$100,000 on a 6%, 2-year note.
2>In 2011, billed General Fund $620,000 for services provided. Billings to the
Enterprise Fund totaled $165,000. All billings were collected by December 31, 2011
except for $100,000 charged to the General Fund.
3>Accrued year-end adjustments at December 31, 2011 for interest expense and
depreciation. The useful life of the equipment is 5 years with no salvage value.
3) Snackle Inc. is a 90%-owned subsidiary of Pasha Corp. On January 1, 2010, Snackle
issued $400,000 of $1,000 face amount 8% bonds at $964 per bond. Interest is paid on
January 1 and July 1 of each year and covers the preceding six months. On July 2, 2011,
Pasha purchased all 400 bonds on the open market for $1,030 per bond. The bonds
mature on December 31, 2012 . Both companies use straight-line amortization.
Required:
With respect to the bonds, use General Journal format to:
1>Record the 2011 journal entries from July 1 to December 31 on Pasha’s books.
2>Record the 2011 journal entries from July 1 to December 31 on Snackle’s books.
3>Record the elimination entries for the consolidation working papers for the year
ending December 31, 2011 .
4) Daniel, Ethan, and Frank have a retail partnership business selling personal
computers. The partners are allowed an interest allocation of 8% on their average
capital. Capital account balances on the first day of each month are used in determining
weighted average capital, regardless of additional partner investment or withdrawal
transactions during any given month. Withdrawals of capital that are debited to the
capital account are used in the average calculation. Partner capital activity for the year
was:
Capital accountsDanielEthanFrank
Jan 1 balance$ 200,000$ 300,000$ 250,000
Feb 2 investment50,000
Mar 6 investment10,00020,000
Apr 20 withdrawal(10,000)
Jul 3 withdrawal and investment(7,000)10,000
Sep 29 investment5,0004,0005,000
Nov 5 investment5,000
Required:
Calculate weighted average capital for each partner, and determine the amount of
interest that each partner will be allocated. Round all calculations to the nearest whole
dollar.
5) Alf, Bill, Cam, and Dot are partners who share profits and losses 30%, 20%, 35%,
and 15%, respectively. The partnership will be liquidated gradually over several months
beginning January 1, 2011 . The partnership trial balance at December 31, 2010 is as
follows:
DebitsCredits
Cash$6,000
Accounts receivable20,000
Inventory50,000
Loan to Bill8,000
Furniture30,000
Equipment36,000
Goodwill20,000
Accounts payable$23,500
Note payable60,000
Loan from Cam12,400
Alf, capital (30%)24,000
Bill, capital (20%)18,000
Cam, capital (35%)24,000
Dot, capital (15%)8,100
Totals$170,000$170,000
Required:
Prepare a cash distribution plan for January 1, 2011, showing how cash installments
will be distributed among the partners as it becomes available. Prepare vulnerability
rankings for the partners and a schedule of assumed loss absorption.