Corporate Liquidation & Reorganization

NAME: Date:

Professor: Section: Score:

QUIZ #5:

1. The estimated recovery of unsecured creditors without priority is equal

a. to the realizable value of the assets pledged plus the excess amount multiplied by the estimated
recovery percentage.
b. to the realizable value of the assets pledged minus the excess amount multiplied by the estimated
recovery percentage.
c. to their claims multiplied by the estimated recovery percentage.
d. any of these

2. 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

3. If the total debits in the statement of realization and liquidation exceeds the total credits, there is
a. net gain for the period c. either a or b
b. net loss for the period d. none of these

4. “Assets to be realized” is placed on which side of a statement of realization and liquidation?

a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side

5. “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

6. “Liabilities not liquidated” is placed on which side of a statement of realization and liquidation?
a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
 d. no side

7. “Liabilities liquidated” 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 settlement amount
c. debit side, measured at book value
d. debit side, measured at actual settlement amount

The next three questions are based on the following information:

Quitter Co. is undergoing liquidation. Relevant information follows:

Carrying
amount Realizable value

Assets pledged with partially secured creditors 80,000 50,000

Free assets 220,000 160,000

Expected settlement amount Amount unsecured

Liabilities with priority 16,000 -

Partially secured creditors 75,000 25,000

Unsecured creditors 155,000 155,000

8. What is the total amount available for payment of claims of unsecured creditors?
a. 210,000 c. 144,000
b. 160,000 d. 0

9. What is the estimated amount of liquidating dividend per peso claim?

a. 1.17 c. 0.88
b. 1.03 d. 0.80

10. What is the amount of deficiency to creditors?

a. 36,000
b. 144,000
c. 160,000
d. 180,000
Use the following information for the next eleven questions:
Fact pattern
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
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 information was determined before the commencement of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. The note receivable is fully collectible. An accrued interest receivable of ₱40,000 was not yet
recorded.
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 the land and building for a total selling price of ₱10,400,000.
Costs to sell the land and building are negligible as the prospective buyer agrees to shoulder all
necessary costs of transferring title to the property.
f. The equipment is expected to be sold at a net selling price of ₱800,000.
g. Administrative expenses expected to be incurred during the liquidation process is ₱120,000. This
amount is not yet reflected on the statement of financial position.
h. Accrued expenses include accrued salaries of ₱100,000.
i. Accrued interest on the loan payable amounting to ₱60,000 was not reflected in the statement of
financial position.
j. All of the other liabilities are stated at their expected settlement amounts.

11. 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

12. How much are the total assets pledged to partially secured creditors?
a. 800,000 b. 3,140,000 c. 1,200,000 d. 400,000

13. How much are the total free assets?

a. 2,788,800 b. 5,248,800 c. 4,048,800 d. 2,908,800

14. How much are the total net free assets?

a. 3,682,800 b. 4,048,800 c. 2,908,800 d. 3,628,800

15. How much are the total unsecured liabilities with priority?
a. 1,620,000 b. 220,000 c. 1,520,000 d. 100,000

16. How much are the total fully secured creditors?

a. 8,000,000 b. 8,060,000 c. 8,800,000 d. 9,620,000

17. How much are the total partially secured creditors?

a. 1,200,000 b. 1,260,000 c. 2,820,000 d. 3,920,000

18. How much are the total unsecured liabilities without priority?
a. 4,784,000 b. 4,884,000 c. 4,904,000 d. 5,184,000

19. How much is the estimated deficiency to unsecured creditors without priority?
a. 1,655,200 b. 1,555,200 c. 1,380,200 d. 1,456,200

20. What is the estimated recovery percentage of unsecured creditors without priority?
a. 75.85% b. 31.71% c. 70% d. 24.15%

21. How much can the shareholders expect to recover from their equity interests?
a. 483 ,000 b. (478,800) c. (165,186) d. 0