Assets Book Value Estimated Realizable Values

ADVANCE ACCOUNTING 1
CORPORATE LIQUIDATION
The unsecured creditors of INSOLVE Corporation filed a petition on July 1, 2020 to force the Corporation
into Bankruptcy. The court order for relief was granted on July 10 at which time an interim trustee was appointed to
supervise liquidation of the estates. A listing of assets and liabilities of The Corporation as of July 10, 2014, along
with estimated realizable values, is as follows:
Assets Book Value Estimated Realizable Values
Cash 61,400
Accounts receivable 250,000 15% of the accounts receivable is
Allowance for D/A (20,000) Estimated to be uncollectible
Inventories 420,000 Estimated selling price, 340,000
which will require additional
costs of 50,000
Prepaid Expenses 40,000 ?
Investments 180,000 110,000
Land 210,000 An offer of 500,000 has been
Building (net) 260,000 received for land and buildings
Machinery and equipment (net) 220,000 53,900
Goodwill 200,000
Total Assets 1,821,400
Liabilities & Equity
Accounts payable 670,000
Wages Payable 3,400
Notes Payable 160,000
Accrued interest notes 5,000
Mortgage payable 400,000
Secured by land & Buildings
Capital Stock 800,000
Additional paid-in capital 80,000
Deficit (297,000)
Total Liabilities & Equity 1,821,400
Additional information:
a. Patents completely written-off the books in past years but with a realizable value of 10,000.
b. The books do not show the following accruals (unrecorded) expenses/ additional liabilities):
a. Taxes…………………………………… 16,400
b. Interest on mortgages……………………. 10,000
c. The investments have been pledged as security for holder of the notes payable.
d. The trustee fees and other costs of liquidating the estates are estimated to be 60,000.
DETERMINE THE FOLLOWING:

1. The total free assets should be:
2. The net free assets should be:
3. The estimated deficiency to unsecured creditors should be:
4. The expected recovery percentage of unsecured creditors should be:
5. The estimated payment to creditors should be:
6. The estimated net gain or loss on assets realization should be:
7. The estimated net loss should be:
8. The estimated payment to creditors should be:
SOLUTIONS TO INSOLVE CORPORATION
ASSETS Appraise value Est. Amt. Available Free Asset

Assets pledge to fully secured creditors
Land and Building 500,000
Mortgage Payable 400,000
Interest Payable 10,000 (410,000) 90,000
Assets pledge to unsecured creditors
Investments 110,000
Interest Payable 5,000
Free Assets
Cash 61,400 61,400
Accounts Receivable [250,000 –
(250,000 * 15%)] 212,500 212,500
Inventories 290,000 290,000
Machinery and Equipment 53,900 53,900
Unrecorded Patent 10,000 10,000
Total free assets 717,800
Add: Unsecured creditor with priority
Wages payable 3,400
Taxes Payable 16,400
Liquidating Cost 60,000 (79,800) (79,800)
Net Free assets 638,000
Liabilities and Stockholders’ Amount Unsecured

Equity
Unsecured creditors with priority
Wages Payable 3,400
Taxes Payable 16,400
Liquidating costs 60,000 79,800
Fully Secured liabilities
Mortgage Payable 400,000
Land Building 0 410,000
Partially Secured Creditors
Investments (110,000) 55,000 55,000
Unsecured Creditors
Accounts Payable 670,000 670,000
Total Unsecured creditors 725,000
Less : Free Assets 638,000
Estimated Deficiency 87,000
Expected Recovery percentage of unsecured creditors

638 ,000
Net free assets ¿
725,000
= .88 ~ 88%
Unsecured creditors
Estimated Payment to Creditors
Amount paid Percentage

Fully Secured 410,000 410,000 100%
Partially Secured
110,000 + (55,000 x .88 ) 158,400 96%
Unsecured creditors with priority 79,800 100%
Unsecured creditors without priority 670,000 589,600 88%
Total payments 1,237,800
Estimated loss/gain on asset realization
Accounts Receivable 17,500

Inventory 130,000
Prepaid Expenses 40,000
Investments 70,000
Land and Building (30,000)
Machinery and Equipment 166,100
Goodwill 200,000
Unrecorded Assets- Patent (10,000)
Total estimated loss on realization 583,600
Add: Unrecorded expenses
Taxes 16,400
Interest on mortgage 10,000
Liquidating costs 60,000
Estimated Net loss 670,000
Less : Stockholder’s Equity 800,000 + 80,000 -297,000 583,000
Estimated deficiency to unsecured creditors 87,000
Estimated Realizable Values of Assets

Cash 61,400
Accounts Receivable 212,500
Inventories 290,000
Investments 110,000
Prepaid Expenses 0
Land and Building 500,000
Machineries 53,900
Goodwill 0
Additional assets- unrecorded 10,000
Total Realizable value of Assets 1,237,800
Less Payments made
Fully secured creditor- Mortgage 410,000
payable
Partially secured creditors 110,000
Taxes 16,400
Wages 3,400
Liquidating expenses 60,000 599,800
Net Free Assets 638,000

Assets Book Value Estimated Realizable Values

Uploaded by

Copyright:

Available Formats

Assets Book Value Estimated Realizable Values

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

Assets Book Value Estimated Realizable Values

Uploaded by

Copyright:

Available Formats

ADVANCE ACCOUNTING 1

DETERMINE THE FOLLOWING:

ASSETS Appraise value Est. Amt. Available Free Asset

Liabilities and Stockholders’ Amount Unsecured

Expected Recovery percentage of unsecured creditors

Amount paid Percentage

Estimated loss/gain on asset realization

Accounts Receivable 17,500

Estimated Realizable Values of Assets

You might also like