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Corporate Liquidation Problem 2 Solution

ABC Corporation is in liquidation with total assets of P7,500,000 and total liabilities of P7,500,000. The recovery percentage for unsecured creditors is 73.54%, leading to an estimated deficiency of P365,120 and estimated payments to partially secured creditors of P3,138,861. Additionally, unsecured creditors without priority are estimated to receive P755,991.

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128 views2 pages

Corporate Liquidation Problem 2 Solution

ABC Corporation is in liquidation with total assets of P7,500,000 and total liabilities of P7,500,000. The recovery percentage for unsecured creditors is 73.54%, leading to an estimated deficiency of P365,120 and estimated payments to partially secured creditors of P3,138,861. Additionally, unsecured creditors without priority are estimated to receive P755,991.

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hakdoghakdog84
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Exercise 2: ABC Corporation is undergoing liquidation and has the following condensed Statement of

Financial Position as of January 1, 2024:

Assets Liabilities & Shareholders’ Equity

Cash P913,600 Salaries Payable P 400,000


Receivables 2,726,400 Accounts Payable 868,000
Inventory 640,000 Mortgage Payable 3,200,000
Prepaid Expenses 20,000 Loan Payable 1,760,000
Building (net) 2,760,000 Note Payable 640,000
Goodwill 440,000 Ordinary shares 960,000
Deficit (328,000
Total P7,500,000 P7,500,000

The mortgage payable is secured by the building having an estimated realizable value of P2,880,000.
Accounts payable amounting to P480,000 is secured by the receivables amounting to P681,600 which is
estimated to be collectible in the amount of P545,280. The balance in the recorded amount of the
receivables which has an estimated realizable value of P1,880,000 is used to secure the loan payable. The
inventory is estimated to be sold in the amount of P424,000. In addition to the recorded liabilities are
accrued interest on mortgage payable amounting to P32,000, liquidation expenses amounting to P76,000
and taxes amounting to 32,000. (use two decimal places for the recovery percentage)

1. What is the recovery percentage? 73.54%

Net Frees Assets 1,014,880


Divided by: Total Unsecured Liabilities 1,380,000

2. What is the estimated deficiency? (365,120)

Total Unsecured Liabilities 1,380,000


Less: Net Frees Assets (1,014,880)

3. What is the estimated payment to the partially secured creditors? 3,138,861

Bldg 2,880,000 + Unsecured portion 352,000 x 73.54% = 258,861

4. What is the estimated payment to the unsecured without priority creditors?

AP 388,000
NP 640,000
X 73.54% = 755,991
FV of Assets Liability Free Asset Unsecured w/o
priority
Cash 913,600 913,600
AR1 545,280 480,000 AP 65,280
AR2 1,880,000 1,780,000 LP 120,000
Inventory 424,000 424,000
Building 2,880,000 3,232,000 MP 352,000
Prepaid expense -
Goodwill -
Remaining AP
388,000
NP 640,000

Total Free Assets 1,522,880


Unsecured (508,000)
Liabilities w/
priority
Net Free Assets 1,014,880 / 1,380,000

Unsecured Liabilities with priority


Salaries 400,000
Liquidation expenses 76,000
Taxes 32,000
508,000

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