Book Value Realizable Value

On June 1, 20x5 the books of Dremer Corporation show assets with books values and realizable values
as follows:
Book value Realizable value

Cash 1,850 1,850
Accounts Receivable-net 21,200 17,000
Note Receivable 15,000 15,000
Inventory 41,000 20,000
Investment in Calandir Stock 5,800 15,000
Land and Building-net 98,500 92,800
Equipment-net 43,000 8,000
TOTALS 226,350 169,650
Dremer’s books show the following liabilities
BOOK VALUE
Accounts Payable (50,000 secured by inventory and equipment) 90,625
Wages Payable 3,775
Other Accrued Liabilities 10,000
Accrued Interest on Notes Payable 375
Accrued Interest on Mortgage Payable 600
Notes Payable (secured by Calandir Stock) 10,000
Mortgage Payable (secured by Land and Building) 70,000
TOTAL 185,375
1. Compute the estimated amount available to unsecured creditors or total free assets. 56,900
2. Compute the estimated amount available to unsecured creditors without priority or total net free
assets. 72,625
3. Compute the dividend to unsecured creditors without priority. .78
4. Compute the estimated amount to be paid to partially secured creditors. 45,160
5. Sparkman co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman was paying
forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of 150,000 on land that
was sold 110,000. The total amount of payment Bailey should have received is calculated to be:
a. 110,000 d. 134,000
b. 44,000 e. 60,000
c. 126,000
6. Target corporation was forced into bankruptcy and is in the process of liquidating assets and
paying claims. Unsecured claims will be paid thirty cents on the peso. Arrow holds a note
receivable from Target for 90,000 collaterized by an asset with a book value of 60,000 and a
liquidation value of 30,000. The amount ot be realized by Arrow on the note is:
a. 30,000
b. 48,000
c. 60,000
d. 90,000
Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed of
realization and liquidation is presented below:
ASSETS
Assets to be realized 1,375,000
Assets acquired 750,000
Assets realized 1,200,000
Assets not realized 1,375,000
LIABILITIES
Liabilities liquidated 1,875,000
Liabilities not liquidated 1,700,000
Liabilities to be liquidated 2,250,000
Liabilities assumed 1,625,000
REVENUES AND EXPENSES
Supplementary debits 3,125,000
Supplementary credits 2,800,000
7. The net gain (loss) for the three month period ending March 31 is:
a. 250,000
b. (325,000)
c. 425,000
d. 750,000
8. Compute the ending cash balance of cash account assuming that common stock and deficits are
1,500,000 and 500,000 respectively.
a. 425,000
b. 575,000
c. 1,325,000
d. 1,375,000
9. Palubog Co. is insolvent and its statement of affairs shows the following information:
Estimated gains on realization of assets 1,440,000

Estimated losses on realization of assets 2,000,000
Additional assets 1,280,000
Additional liabilities 960,000
Capital stock 2,000,000
Deficit 1,200,000
The pro rate payment on the peso to stockholders (estimated amount to be recovered by
stockholders) is:
a. .30
b. .43
c. .57
d. .70
10. Dobby corporation was forced into bankruptcy and is in the process of liquidating assets and
paying claims. Unsecured claims will be paid at the rate of 30 cents on the peso. Carson holds a
note receivable from Dobby for 75,000 collaterized by an asset with a book value of 50,000 and
liquidation value of 25,000. The amount to be realized on the note is:
a. 25,000
b. 40,000
c. 50,000
d. 75,000
Solutions:
Dremer corp.
Estimated Estimated Amt Estimated

Net Avail for Gain or
Book Realizable Unsecured (Loss)on
Value Assets Value Creditors Liquidation
Assets pledged with fully secured
creditors:
98,500 Land and Bldg 92,800 22,200 (5,700)
5,800 Investment in Calandir 15,000 4,625 9,200
Total 107,800
Assets pledged with partially
secured creditors:
41,000 Inventory 20,000 (21,000)
43,000 Equipment 8,000 (35,000)
Free Assets:
1,850 Cash 1,850 1,850 0
21,200 Accounts Rec 17,000 17,000 (4,200)
15,000 Note Rec 15,000 15,000 0
Estimated Amount Avail for unsecured creditors
with and without priority 60,675
Less unsecured creditors with priority (3,775)
Estimated amounts for unsecured creditors
without priority (Net Free Assets):
Net Realizable Amount Avail 56,900
_______ Deficiency _______ 15,725 _______
226,350 169,650 72,625 (56,700)
Estimated Estimated Unsecured Amount

Book Liabilities Secured With Without
Value and Owners Equity Amount Priority Priority
Fully Secured Creditors:
600 Accrued Mtg Interest 600
70,000 Mortgage Payable 70,000
375 Accrued N/P Interest 375
10,000 Note Payable 10,000
Total 80,975
Partially Secured
Creditors:
50,000 Accounts Payable 28,000 22,000
Unsecured Creditors with
Priority:
3,775 Accrued Payroll 3,775
Unsecured creditors without
Priority:
40,625 Accounts Payable 40,625
Other Accrued Liabilities _______ 10,000
10,000
185,375 Totals 108,975 3,775 72,625
40,975 Owner Equity
226,350
1. P56,900
2. P72,625
3. P56,900/P72,625 = P.78
4. P45,160 = P28,000 + (P22,000 x 78%)
5. [ P110,000 + (P150,000 – P110,000) x 40%] = P126,000
6. P30,000 + [.30 x (P90,000 – P30,000)] = P48,000
7.
Statement of Realization and Liquidation
Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000

Assets Acquired……………….. 750,000 Assets Not Realized…………… 1,375,000
Liabilities Liquidated…………. 1,875,000 Liabilities to be Liquidated…. 2,250,000
Liabilities Not Liquidated……. 1,700,000 Liabilities Assumed………….. 1,625,000
Supplementary charges/ Supplementary credits……… 2,800,000
debits……………………… 3,125,000
P 8,825,000 P 9,250,000
Net Gain……………………….. P 425,000
8. Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000

+: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000
Total LSHE = Total Assets…………………………………………………………… P 2,700,000
-: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000
Cash balance, ending………………………………………………………………P1,325,000
9. Estimated losses on realization of assets 2,000,000.

Less: Estimated gains on realization of assets 1,440,000
Additional assets 1,280,000
Estimated net (gain) or loss in assets realization (720,000)
Add: Additional liabilities 960,000
Estimated net (gain) or loss 240,000
Less: Stockholder’s Equity
Capital stock 2,000,000
Deficit 1,200,000 800,000
Estimated amount to be recovered by stockholders 560,000
Estimated amount to be recovered by stockholders 560,000

Divided by: Stockholder’s Equity 800,000
Rate of Return: .70
10. C 50,000 because it is a partially secured liability.

Book Value Realizable Value

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Book Value Realizable Value

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On June 1, 20x5 the books of Dremer Corporation show assets with books values and realizable values

Book value Realizable value

Dremer’s books show the following liabilities

Estimated gains on realization of assets 1,440,000

Estimated Estimated Amt Estimated

Estimated Estimated Unsecured Amount

Assets to be Realized…………. P 1,375,000 Assets Realized…………………..P 1,200,000

Net Gain……………………….. P 425,000

8. Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000

9. Estimated losses on realization of assets 2,000,000.

Estimated amount to be recovered by stockholders 560,000

10. C 50,000 because it is a partially secured liability.

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