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IC in AFAR Quiz 2 Answers

The document contains a quiz related to the liquidation process of companies, including calculations for expected recoveries of creditors and shareholders. It presents various scenarios involving unsecured and secured creditors, as well as questions on the roles and processes during liquidation. The quiz tests knowledge on financial recovery percentages, asset realizations, and the responsibilities of stakeholders in a liquidation context.

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21 views2 pages

IC in AFAR Quiz 2 Answers

The document contains a quiz related to the liquidation process of companies, including calculations for expected recoveries of creditors and shareholders. It presents various scenarios involving unsecured and secured creditors, as well as questions on the roles and processes during liquidation. The quiz tests knowledge on financial recovery percentages, asset realizations, and the responsibilities of stakeholders in a liquidation context.

Uploaded by

joyceee877
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Integrated Course in AFAR

Quiz No2. February 10, 2025

1. The statement of affairs of Alpha Co. indicates that unsecured creditors without priority with
total claims of ₱1,350,000 may expect to recover only ₱472,500 after all the assets are sold.
Among the creditors of Alpha Co. are the following:
 Government – taxes payable of ₱240,000, inclusive of ₱80,000 assessments and surcharges.
 XYZ bank – loan payable of ₱2,000,000 and accrued interest of ₱200,000, backed by collateral
security with realizable value of ₱2,800,000.
 Orix Financing Co. – loan payable of ₱1,200,000 backed by collateral security with realizable
value of ₱800,000.
 Mr. Bean – loan payable of ₱750,000 and accrued interest of ₱200,000. No collateral security.
How much is the expected recovery of Mr. Bean?
a. 750,000 b. 472,500 c. 288,000 d. 332,500
2. Using the data in no. 1, how much is the expected amount to be settled with Orix, Financing Co?
a. 420,000 b. 800,000 c. 940,000 d. 1,200,000
3.The following summarizes the results of the liquidation process of Rada Co.’s operations:
Gains on realization of assets 1,720,000
Losses on realization of assets 1,800,000
Additional assets discovered and realized during
700,000
liquidation
Additional liabilities recorded and settled during
620,000
liquidation
Share capital (at original book value) 3,000,000
Deficit (at original book value) 2,200,000
What is the recovery percentage of the shareholders based on the carrying amount of equity?
a. 80% b. 70% c. 100% d. 75%
4. Rays Co. owns 60% of Sun, Inc. During the year, Sun, Inc. filed for bankruptcy and is about to
enter into liquidation. Rays Co. has an outstanding unsecured receivable of ₱5,000,000 from Sun,
Inc. together with an investment in subsidiary of ₱20,000,000. The statement of affairs of Sun, Inc.
shows a 100% recovery for outside creditors and a 20% recovery for inside creditors. How much can
Rays Co. expect to recover from Sun Inc.?
a. 800,000 b. 5,000,000 c. 4,800,000 d. 1,000,000

Use the following information for No. 5 to No. 8


Topper Co. is undergoing liquidation. Information on Topper Co.’s assets and liabilities is shown
below:
Book Realizable
ASSETS value value
Assets pledged to fully secured
creditors
460,000 480,000
Assets pledged to partially secured
creditors
308,000 292,000
Free assets 700,000 676,000
1,468,00
1,448,000
0
LIABILITIES
Unsecured liabilities with priority 148,000 148,000
Fully secured creditors 380,000 380,000
Partially secured creditors 420,000 420,000
Unsecured creditors without 1,442,00
1,442,000
priority 0
2,370,00
2,370,000
0

5.What is the estimated recovery percentage of unsecured creditors without priority?


a. 80% b. 60% c. 70% d. 40%
6.How much can the “unsecured creditors without priority” expect to recover from their claims?
a. 576,800 b. 456,800 c. 1,009,400 d. 1,153,600
7. How much is the estimated amount to be settled to partially secured creditors?
a. 420,000 b. 292,000 c. 128,000 d. 343,200
8. What is the net free assets?
a. 756,000 b. 656,000 c. 628,000 d. 128,000
9. How much is the total unsecured liabilities without priority?

a. 1,570,000 b. 1,442,000 c.1,590,000 d. 1,734,000


10. A trustee is appointed to liquidate the company. The accountant provided the data, Assets at
book value P 50,000, NRV P 25,000; Liabilities for fully secured mortgage payable P 15,000.
Unrecorded liabilities in interest P 750;
Liabilities for unsecured accounts payable 18,000 and administrative expenses P 2,000. How much
is the estate equity(deficit)
a. 7,250 b. (10,750) c. 85,000 d. (8,750)
11. Based from no. 10 data, how much is the expected recovery of unsecured creditors?
a. 7,250 b. 18,000 c. 9,250 d. 10,000
12.Total free assets in the statement of affairs can be computed as
a. the sum of (a) excess of realizable value of assets pledged to fully secured creditors over the
expected net settlement amount of the fully secured liabilities and (b) total realizable value of
assets not pledged as collateral security
b. Total assets measured at realizable value less the sum of (a) unsecured creditors with
priority, (b) fully secured creditors, and (c) realizable value of asset pledged to partially
secured creditors.
c. realizable value of total assets less unsecured liabilities with priority
d. all of these
13.“Assets realized” is placed on which side of a statement of realization and liquidation?
a. credit side, measured at realizable value
b. credit side, measured at actual net proceeds from sale
c. debit side, measured at book value
d. no side
14.Liabilities in the statement of affairs are classified into, except
a. Unsecured liabilities with priority c. Fully secured creditors
b. Partially pledged liabilities d. Unsecured liabilities without priority
15.The estimated recovery of partially secured creditors is equal to
a. the realizable value of the assets pledged plus the excess amount multiplied by the estimated
recovery percentage.
b. the realizable value of the assets pledged minus the excess amount multiplied by the
estimated recovery percentage.
c. their claims multiplied by the estimated recovery percentage.
d. any of these
16. It is a condition in which a company is unable to meet debts as it matures
a. Deficit b. Insolvency c. Illiquidity d. deficiency
17. The document used by a trustee to report periodically of fiduciary activities is called
a. Statement of affairs b. Statement of realization and repayments
c. Statement of Realization and liquidation d. statement of fiduciary activities

18. Which of the following best describes the role of shareholders during a liquidation process?
a. They have the highest priority in being paid
b. They can vote to reverse the liquidation process
c. They are paid last, after all creditors have been settled
d. They are responsible for paying the company’s debts
19. Which of the following transactions typically occurs during the liquidation process?
a. Transfer of company assets to a new management team
b. Repayment of company debts using liquidation proceeds
c. Increase of company capital
d. Investment in new business ventures
20. In the case of a voluntary liquidation, who typically initiates the liquidation process?
a. The company’s creditors
b. The company’s shareholders
c. The government
d. The liquidator

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