36. Rockee Corporation, a bio-tech firm, has found itself in financial difficulty and may file for bankruptcy.
Rockee’s Statement of Affairs reflects the following summary information:
Book value of assets
$700,000
Net realizable value of assets
370,000
Total liabilities
400,000
Secured claims
250,000
Unsecured claims with priority
30,000
Required:
Compute the following:
a.
The deficiency traceable to unsecured creditors with priority
b.
The dividend to general unsecured creditors without priority.
c.
Rockee owes Flint Corporation $9,000 secured by inventory that is expected to realize $7,000. How much can Flint expect to receive on
this claim?
Book value of assets
$700,000
Net realizable of assets
370,000
$330,000
Less stockholders’ equity
($700,000 – $400,000)
300,000
Deficiency
$ 30,000
Dividend
on $1.00
$7,000 + [($9,000 – $7,000) ´ .75] = $8,500
37. On June 1, 20X5, the books of Hallow Corporation show assets with book values and realizable values as
follows:
Assets
Cash
Receivables (net)
Inventory
Land and building (net)
Equipment (net)
Totals
Hallow’s books show the following liabilities:
Liabilities
Book Value
Accounts payable
$ 260,000
Wages payable (eligible for priority)
10,000
Taxes payable
20,000
Accrued interest on notes payable
30,000
Accrued interest on mortgage payable
20,000
Notes payable (secured by receivables and
inventory)
500,000
Mortgage payable (secured by land and building)
300,000
Total
$1,140,000
Required:
a.
Prepare a schedule to determine the amount available for unsecured claims without priority.
b.
Determine the dividend to unsecured claims without priority.
c.
What amount are the note holders likely to receive? What is their dividend?
38. On June 1, 20X5, the books of Dremer Corporation show assets with book values and realizable values as
follows:
Assets
Realizable
Book Value
Value
Cash
$ 1,850
$ 1,850
Accounts Receivable (net)
21,200
17,000
Note Receivable
15,000
15,000
Inventory
41,000
20,000
Investment in Calandir Stock
5,800
15,000
Land and Building (net)
98,500
92,800
Equipment (net)
43,000
8,000
Totals
$226,350
$169,650
Dremer’s books show the following liabilities:
Liabilities
Book Value
Accounts payable (50,000 secured by inventory
and equipment)
$ 90,625
Wages payable (eligible for priority)
3,775
Other Accrued Liabilities
10,000
Accrued interest on notes payable
375
Accrued interest on mortgage payable
600
Notes payable (secured by Investment in Calandir Stock)
10,000
Mortgage payable (secured by land and building)
70,000
Total
$185,375
Prepare an accounting Statement of Affairs including the computation of the dividend to the unsecured creditors without priority.
39. As of June 30, 20X4, the Lillie Corporation has the following assets, liabilities, and owners’ equity:
Assets
Book Value
Cash
$ 10,000
Marketable securities
30,000
Accounts receivable (net)
40,000
Inventories
100,000
Land
50,000
Buildings (net)
140,000
Machinery (net)
105,000
Goodwill
40,000
Total
$515,000
Liabilities and Owners’ Equity
Book Value
Accounts payable
$100,000
Accrued income tax
10,000
Accrued mortgage interest
20,000
Accrued salaries expense
30,000
Mortgage payable
200,000
Common stock ($10 par)
200,000
Additional Paid-in capital
201,000
Deficit
(246,000)
Total
$515,000
The following is provided:
Marketable securities have a market value of $24,000. Accounts receivable are estimated to produce $30,000. The sale of inventories should yield
$120,000, $20,000 of which must be assigned to a creditor (account payable) who is owed $24,000. The land and buildings can be sold for $222,000
with the buyer assuming the mortgage and its unpaid interest. The machinery will realize $50,000. All salaries qualify for priority.
Required:
Prepare a statement of affairs including the calculation of the dividend to the unsecured claims without priority.
40. On June 1, 20X5, the books of Dremer Corporation show assets with book values and realizable values as
follows:
Assets
Realizable
Book Value
Value
Cash
$ 1,850
$ 1,850
Accounts Receivable (net)
21,200
17,000
Note Receivable
15,000
15,000
Inventory
41,000
20,000
Investment in Calandir Stock
5,800
15,000
Land and Building (net)
98,500
92,800
Equipment (net)
43,000
8,000
Totals
$226,350
$169,650
Dremer’s books show the following liabilities:
Liabilities
Book Value
Accounts payable (50,000 secured by inventory
and equipment)
$ 90,625
Wages payable (eligible for priority)
3,775
Other Accrued Liabilities
10,000
Accrued interest on notes payable
375
Accrued interest on mortgage payable
600
Notes payable (secured by Investment in Calandir Stock)
10,000
Mortgage payable (secured by land and building)
70,000
Total
$185,375
Using the following information, prepare a Statement of Realization and Liquidation for Dremer Inc. for the period of 6/1/X5 to 6/30/X5.
41. Mallory Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. On May 1, 20X5, you are
appointed the court’s trustee for the liquidation. The book values for assets and liabilities, on May 1, 20X5, were
as follows:
Cash
$ 4,000
Accounts receivable (net)
80,000
Inventories
200,000
Land and building (net)
340,000
Machinery (net)
100,000
Accounts payable
180,000
Salaries payable (eligible for priority)
60,000
Income tax payable
14,000
Trustee’s fee payable
20,000
Mortgage payable
240,000
Bank loan payable
90,000
During May through July of 20X5, the following occurred:
The mortgage is secured by the land and building and the bank loan is secured by the machinery. The accounts payable are secured by the
inventories.
Three-fourths of the accounts receivable were collected. Of the remaining accounts, $10,000 are believed to be uncollectible.
The inventories were sold for $170,000.
The land and building were sold for $20,000 and assumption of the mortgage. The machinery sold for $70,000 and the proceeds were remitted to the
bank.
Salaries payable and $170,000 of the accounts payable were paid.
Required:
Complete Figure 21-A: Statement of Realization and Liquidation for May, June, and July of 20X5.
Figure 21-A
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20X5
Assets
Assets
Cash
Non-Cash
Beginning balances assigned 5/1/X5
$4,000
$720,000
Cash Receipts:
Collection of accounts receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts pay
Partial payment of bank loan
Ending balances
(continued)
Liabilities
Unsecured
Fully
Partially
With
Without
Owner’s
Assets
Secured
Secured
Priority
Priority
Equity
Beginning balances assigned 5/1/X5
Cash Receipts:
Collection of accounts receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts pay
Partial payment of bank loan
Ending balances
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20X5
Assets
Assets
Cash
Non-Cash
Beginning balances assigned 5/1/X5
$ 4,000
$720,000
Cash Receipts:
Collection of accounts receivable
60,000
(70,000)
Sale of inventory
170,000
(200,000)
Sale of land and building
20,000
(340,000)
Cash Disbursements:
Payment of salaries payable
(60,000)
Partial payment of accounts pay.
(170,000)
Partial payment of bank loan
(70,000)
Ending balance
$24,000
$ 10,000
Liabilities
Unsecured
Fully
Partially
Without
Owner’s
Assets
Secured
Secured
Priority
Priority
Equity
Beginning balances assigned 5/1/X5
$240,000
$270,000
$94,000
$ 0
$120,000
Cash Receipts:
Collection of accounts receivable
(10,000)
Sale of inventory
(30,000)
Sale of land and building
(240,000)
(80,000)
Sale of machinery
(30,000)
Cash Disbursements:
Payment of salaries payable
(60,000)
Partial payment of accounts pay
(180,000)
10,000
Partial payment of bank loan
(90,000)
20,000
Ending balances
$ $ 0
$ $ 0
$34,000
$30,000
$ $(30,000)
42. Describe the options that are available to a corporation that is unable to service its debts on a timely basis
but that does NOT require court action.
43. Fresh-start accounting must be adopted by certain debtors emerging from chapter 11 bankruptcy.
1)
When is fresh start accounting required?
2)
What are some of the characteristics of fresh-start accounting?
2) As a result of fresh-start accounting, the following should occur:
a) The reorganization value should be allocated to the entity’s tangible and intangible assets, including goodwill.
b) Liabilities other than deferred taxes should be reported at their present values based on appropriate current interest rates.
d) The new reorganized fresh-start entity should have no beginning retained earnings or deficit.
e) Notes to the financial statements should disclose various information regarding the fresh-start.
Transfer of Assets to settle a debt
Granting an equity interest in settlement of a debt
Modification of terms, either payments, interest, principal, or a combination
44. Describe the duties of the trustee in a Chapter 7 liquidation.
Chapter 7 requires that a court appoint a trustee which can be changed by the creditors. The trustee’s duties are
extensive including:
45. Differentiate by function the Accounting Statement of Affairs and the Statement of Realization and
Liquidation.