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Quiz 1 - Corporate Liquidation Reorganization
Quiz 1 - Corporate Liquidation Reorganization
Chapter 5
Corporate Liquidation & Reorganization
NAME: Date:
Professor: Section: Score:
QUIZ:
1. Which of the following statements is correct?
a. Involuntary insolvency occurs when the insolvent corporation voluntarily applies, by
petition to a court of law, to be discharged from its liabilities.
b. Voluntary insolvency occurs when three or more creditors of the insolvent corporation file a
petition to a court of law for the adjudication of the corporation as insolvent.
c. The Conceptual Framework and the PFRSs are intended to apply to liquidating entities.
d. The measurement bases under the Conceptual Framework and the PFRSs are not applicable to
liquidating entities.
3. These are liabilities secured by assets with realizable values that are equal to or greater than the
expected net settlement amounts of the liabilities.
a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority
11,200,000
Total assets 14,800,000
LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses 884,000
Current tax payable 1,400,000
Accounts payable 4,000,000
6,284,000
Noncurrent liabilities:
Note payable (secured by equipment) 1,200,000
Loan payable (secured by land and building) 8,000,000
9,200,000
Capital deficiency:
Share capital 2,000,000
Retained earnings (deficit) (2,684,000)
(684,000)
Total liabilities and equity 14,800,000
Additional information:
The following were determined before the commencement of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. The note receivable is fully collectible and, in addition, interest of ₱40,000 is expected to be
collected.
c. The inventory has an estimated selling price of ₱1,680,000 and estimated costs to sell of ₱40,000.
d. The prepaid assets are non-refundable.
e. The land and building have fair values of ₱8,000,000 and ₱3,200,000, respectively. However,
Andrix Asterix Co. expects to sell both assets at a single price of ₱10,400,000. Costs to sell are
negligible because the prospective buyer agrees to shoulder all costs relating to the transfer of
the property.
f. The equipment is expected to be sold at a net selling price of ₱800,000.
g. Liquidation costs of ₱120,000 are expected to be incurred.
h. The accrued expenses include accrued salaries of ₱100,000.
i. Interest of ₱60,000 is expected to be paid on the loan.
j. All the other liabilities are stated at their expected net settlement amounts.
4. How much are the total assets pledged to fully secured creditors?
a. 11,200,000
b. 12,000,000
c. 10,400,000
d. 0
a. 1,200,000 c. 2,820,000
b. 1,260,000 d. 3,920,000
7. What is the estimated recovery percentage of unsecured creditors without priority? (round-off
answer to two decimal places)
a. 75.85% c. 70.00%
b. 31.71% d. 24.15%