Quiz 1 - Corporate Liquidation Reorganization

Page |1
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.
2. Assets in the statement of affairs are classified into

a. Assets pledged to fully secured creditors
b. Assets pledged to partially secured creditors
c. Free assets.
d. All of these
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
Use the following information for the next four questions:

Andrix Asterix Co. has filed for voluntary insolvency and is about to liquidate its business. Andrix
Asterix Co.’s statement of financial position immediately prior to the liquidation process is shown
below:
Andrix Asterix Co.
Statement of financial position
As of December 31, 20x0
ASSETS
Current assets:
Cash 160,000
Accounts receivable 880,000
Note receivable 400,000
Inventory 2,120,000
Prepaid assets 40,000
3,600,000
Noncurrent assets:
Land 2,000,000
Building, net 8,000,000
Equipment, net 1,200,000
Page |2
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
5. How much is presented in the statement of affairs as “net free assets?”

a. 3,682,800
b. 4,048,800
c. 2,908,800
d. 3,628,800
6. How much is presented in the statement of affairs as “partially secured liabilities?”

Page |3
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%
Use the following information for the next three questions:

The following transactions were ascertained during bankruptcy of BBB Co.:
A mortgage payable of P192,500 is secured by building valued at P15,000 less than its carrying
amount of P230,000. Note payable of P97,500 is secured by furniture and equipment with a
carrying amount of P120,000 that is estimated to be 70% unrealizable. Assets not mentioned
above have an estimated value of P62,500, an amount that is P15,000 below its carrying amount.
Total liabilities not mentioned above total P96,000, including claims with priority of P18,500,
interest on mortgage of 2,500 and interest on the note of 800.
8. What is the estimated recovery percentage of the partially secured creditors?

a. 66.34% b. 69.53% c. 68.23% d. 67.21%
9. What is the estimated loss on realization of assets?

a. 66,000 b. 114,000 c. 30,000 d. 99,000
10. What is the estimated payment to creditors without priority?

a. 64,005 b. 34,792 c. 35,874 d. 65,125
Page |4

Quiz 1 - Corporate Liquidation Reorganization

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Quiz 1 - Corporate Liquidation Reorganization

Uploaded by

Copyright:

Available Formats

Page |1

2. Assets in the statement of affairs are classified into

Use the following information for the next four questions:

5. How much is presented in the statement of affairs as “net free assets?”

6. How much is presented in the statement of affairs as “partially secured liabilities?”

Use the following information for the next three questions:

8. What is the estimated recovery percentage of the partially secured creditors?

9. What is the estimated loss on realization of assets?

10. What is the estimated payment to creditors without priority?

You might also like