CORPORATE LIQUIDATION

STRAIGHT PROBLEMS

Problem 1: The Statement of Affairs Problem 2: Accounting for Receivership

The following information is available on September 20, The balance sheet of SAINT LAWRENCE ENTERPRISES at
2021, for FRESH and GREEN COMPANY, which is having June 10, 2021 follows. At this date an interim trustee was
difficulty in paying its liabilities as they become due: appointed by the court to assume control of SAINT
LORENZO’s estate and liquidate the distressed corporation.
Carrying Amount
Cash P 6,881
Cash P 15,360
Accounts receivable, net, fair value
Accounts receivable 30,720
equal to carrying amount 79,135
Inventories 138,240
Inventories, current fair value ,
Land 76,800
P30,966 pledged on P36,127 of notes
Buildings, net 384,000
payable 67,093
Intangible assets 99,840
Machinery and equipment, net,
Total P744,960
current fair value of P115,950
Accounts payable P 192,000
pledged on mortgage note payable 184,075
Notes payable 153,600
Office supplies, current fair value of
Deferred revenue 3,840
P4,301 3,440
Wages payable 11,520
Total Assets P340,624
Mortgage note payable 307,200
Capital stock 153,600
Retained earnings, deficit (76,800)
Wages payable 9,978
Total P744,960
Taxes payable 2,065
Accounts payable 103,219
Additional information:
Notes payable, P36,127 of which is
1. The land and the buildings are pledged as security for
secured by inventories 68,813
the mortgage payable.
Mortgage note payable 86,704
2. In June, 2021, SAINT LAWRENCE received P3,840 from
Common stock, P10 par 172,032
a customer as payment in advance for merchandise
Retained earnings, deficit 102,187
that is no longer marketed and thus can no longer be
Total Liabilities and Equity P340,624
provided.
3. Activities of the trustee during June are summarized as
follows:
a. P27,648 is collected on the receivables.
b. Inventories are sold for P74,496.
c. Land and buildings bring total of P384,000.
Additional information:
d. Nothing is realized from the intangible assets.
(1) Estimated liability to the trustee is P44,728.
e. Administrative expenses of P31,488 are incurred
(2) A delivery van previously given to the supervisor was
by the trustee.
returned to the company, fair market value, P43,008.
REQUIRED:
REQUIRED: 1. Prepare journal entries in the books of the trustee and
a. Prepare a statement of affairs as of September 20, in the books of the distressed company for the above
2021. transactions.
b. Compute the estimated recoverable amounts to the 2. Prepare a statement of realization and liquidation using
different types of creditors in the event of liquidation. the conventional method..
c. Prepare a statement of deficiency to unsecured 3. Discuss briefly and illustrate how the realization of
creditors at September 20, 2021. non-cash asset is accounted for under the book value
method.

PROBLEM I STATEMENT OF AFFAIRS – FRESH

and GREEN COMPANY
ASSETS
.
Estimated Net
Book Realizable Asset Unsecured
Value Pledged with Fully Secured Creditor : Value Available Amount
184,075 Machinery and equipment 115,950 (68,125)
Less Mortgage note payable 86,704 29,246

Pledged with PSC:

67,093 Inventories (deducted contra) 30,966 - (36,127)
Free Assets:
6,881 Cash 6,881 6,881 -
79,135 Accounts receivable 79,135 79,135 -
3,440 Office supplies 4,301 4,301 861
- Delivery van 43,008 43,008 43,008
Estimated Net Loss ( 60,383)
Estimated Total Amount for Unsecured Creditors 162,571
 Less: claims with priority (see contra) 56,771
Estimated net amount for claims w/o priority 105,800
Estimated deficiency to claims w/o priority 35,266
340,624 141,066

Unsecured
Book Value Liabilities Amount
Fully secured claims (FSC):
86,704 Mortgage note payable (deducted contra) 86,704
Unsecured claims with priority (deducted. contra):
9,978 Wages payable 9,978
2,065 Taxes Payable 2,065
- Estimated Liability to Trustee 44,728 56,771
Partially secured claims (PSC:
36,127 Notes payable 36,127
Less: Realizable value of
Inventories (30,966) 5,161
Unsecured claims without priority:
32,686 Notes payable 32,686
103,219 Accounts Payable 103.219 135,905

Stockholders’ Equity
172,032 Capital Stock

(102,187 Retained Earnings (Deficit)

340,624 141,066

Problem 2 (a) Accounting for Receivership – Journal entries

BOOKS OF TRUSTEE BOOKS OF SB ENTERPRISES

Cash 15,360 Trustee Account 76,800
Accounts Receivable 30,720 Accounts Payable 192,000
Notes
Inventories 138,240 Payable 153,600
Land 76,800 Deferred Revenue 3,840
Buildings 384,000 Wages Payable 11,520
Intangible Assets 99,840 Mortgage Note Payable 307,200
Accounts Payable 192,000 Cash 15,360
Notes Payable 153,600 Accounts Receivable 30,720

Deferred Revenue 3,840 Inventories 138,240

Wages Payable 11,520 Land 76,800
Mortgage Note Payable 307,200 Building 384,000
Estate Equity 76,800 Intangible Assets 99,840

Cash 486,144 Retained Earnings 274,944

Estate
Equity 274,944 Trustee Account 274,944
Accounts Receivable 30,720
Inventories 138,240
Land 76,800
Bldgs 384,000
Intangible Assets 99,840
Payable to Trustee 31,488

Mortgage Note Payable 307,200 No Entry

Deferred Revenue 3,840
Wages Payable 11,520
Payable to Trustee 31,488
Cash 354,048

Accounts Payable 81,920 No Entry

Notes Payable 65,536
Cash 147,456

Capital
Accounts Payable 110,080 Stock 153,600
Notes Payable 88,064 Trustee Account 198,144
Estate Equity 198,144 Retained Earnings 351,744

(b) Statement of Realization and Liquidation (Conventional Method)

 ASSETS
To be Realized: Realized:
Accounts Receivable 30,720 Accounts Receivable 27,648

Inventories 138,240 Inventories 74,496

Land 76,800 Land & Bldgs. 384,000
Buildings 384,000
Intangible Assets 99,840
Total 729,600 Total 486,144

Acquired: - Not Realized -

LIABILITIES
Liquidated: To be Liquidated:
Accounts Payable 81,920 Accounts Payable 192,000
Notes Payable 65,536 Notes Payable 153,600
Deferred Revenue 3,840 Deferred Revenue 3,840
Wages Payable 11,520 Wages Payable 11,520
Mortgage Note Payable 307,200 Mortgage Note Payable 307,200
Payable to Trustee 31,488
Total 501,504 Total 668,160

Not Liquidated: Assumed:

Accounts Payable 110,079 Payable to Trustee 31,488
Notes Payable 88,065
Total 198,144 Total 31,488

REVENUES & EXPENSES

supplementary
Charges Supplementary Credits
Liquidation Expenses 31,488 -
Total 31,488 - Total

Total Total
Debits 1,460,736 1,185,792 Credits
274,944 Net Loss
1,460,736 1,460.736
SUPPLEMENTARY SCHEDULES:
Cash CAPITAL STOCK RETAINED EARNINGS
15,360 354,048
486,144 147,456 153,600 76,800
274,944