1. Tech Co. and Robotics Co.

are joint operators in the development of Super OS, a mobile phone

operating system. Each joint operator retains control over the assets contributed to the joint
operation and share equally in the profits and losses of the joint operation. During the year, Tech
Co. earns revenue of ₱1,000,000 from its own operations. Sales of Super OS amount to ₱400,000.
How much total revenue shall be reported in Tech Co.’s statement of profit or loss for the year?
a. ₱1,000,000 c. ₱1,400,000
b. ₱1,200,000 d. Either a or b
2. Tech Co. and Robotics Co. are joint venturers of Mecha Co., a producer of high tech machinery.
Tech and Robotics, each have a 50% interest in the net assets of Mecha Co. During the year, Tech
Co. earns revenue of ₱1,000,000 from its own operations while Mecha Co. reports revenue of
₱400,000. How much total revenue shall be reported in Tech Co.’s statement of profit or loss for
the year?
a. ₱1,000,000 c. ₱1,400,000
b. ₱1,200,000 d. Either a or b
3. If an entity’s statement of financial position shows an “investment” account for its interest in a
joint arrangement, a user of the entity’s financial statement would most like find out in the notes
that the nature of the joint arrangement is a(an)
a. joint operation c. investment in associate
b. joint venture d. either of these
4. In its financial statements that are not considered separate financial statements, how should a
joint venturer account for its interest in a joint arrangement?
a. The joint venturer recognizes its share in the assets, liabilities, income and expenses in the
joint venture by adding those shares, line by line, to similar accounts.
b. The venturer uses the equity method to recognize its share in the profit or loss of the joint
venture by recognizing its share in the revenues and expenses of the joint venture.
c. The venturer uses the equity method to recognize its share in the changes in the net assets of
the joint venture through one-line consolidation.
d. The venturer accounts for the investment at cost, at fair value or using the equity method.
Use the following information for the next two questions:
The following are the transactions of a joint operation formed by A, B and C during a year:
a. A contributed cash of ₱100 and merchandise costing ₱200.
b. B contributed merchandise costing ₱400. Freight-in paid by B is ₱20.
c. C made purchases amounting to ₱100 using the cash contributed by A.
d. C paid expenses of ₱200 using its own cash.
e. C made total sales of ₱800. All the merchandise was sold except one-half of those contributed by
B.
f. C is appointed as the manager of the joint operation. As compensation, C is entitled to a ₱30
salary plus bonus of 25% on profit after salary and bonus.
g. Interest of 10% per annum is allowed to A and B’s capital contributions.
h. C is charged for the cost of any unsold inventory. Profit or loss after necessary adjustments shall
be divided equally.
5. How much is the profit or loss after salaries and bonus of the joint operation?
a. 90
b. 60
c. 48
d. 26
Solution:
Profit or loss is computed as follows:
Joint operation
Merchandise – A 200 800 Sales – C
Purchases - A's cash 100
Merchandise – B 400 210 Unsold inventory charged to C*
Freight - in – B 20
6. A and B formed a joint operation. The following were the transactions during the year:
AB
Total purchases 100 80
 Total sales 240 180
Expenses paid 200
Other income 10
The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.
How much is B’s cash settlement?
a. 92 payment
b. 92 receipt
c. 18 receipt
d. 0
Solution:
Joint operation - A
Purchases – A 100 240 Sales – A
Purchases – B 80 180 Sales – B
Expenses – A 200 10 Other income - B
50 Profit - credit balance
Profit is allocated as follows:
Allocation to: A B Totals
Profit for the year 50
10% commission on purchases:
(10% x 100) – A 10 (10)
(10% x 80) – B 8 (8)
20% commission on sales:
(20% x 240) – A 48 (48)
(20% x 180) – B 36 (36)
Total to be divided equally (52)
Allocation: (52 ÷ 2) (26) (26) 52
Net share - as allocated 32 18 -
Cash settlement is determined as follows:
Joint operation - A
Purchases 100 240 Collections on sales
Expenses 200
Net share 32
Cash settlement – receipt 92
Joint operation - B
Purchases 80 180 Collections on sales
Net share 18 10 Collections on other income
92 Cash settlement - payment
In the settlement, B will pay A cash of ₱92.
7. A and B formed a joint operation. The following were the transactions during the year:
AB
Total purchases 100 80
Total sales 120 60
Expenses paid 200
Other income 10
The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.
How much is A’s cash settlement?
a. 92 payment
b. 92 receipt
c. 190 receipt
d. 88 payment
Joint operation
Purchases – A 100 120 Sales - A
 Purchases – B 80 60 Sales - B
Expenses – A 200 10 Other income - B
Loss - debit balance 190
The loss is allocated as follows:
Allocation to: A B Totals
Loss during the year (190)
20% commission on purchases:
(10% x 100) – A 10 (10)
(10% x 80) – B 8 (8)
25% commission on sales:
(20% x 120) – A 24 (24)
(20% x 60) – B 12 (12)
Loss to be allocated equally (244)
Allocation: (244 ÷ 2) (122) (122) 244
Net share - as allocated (88) (102) -
Cash settlement is determined as follows:
Joint operation - A
Purchases 100 120 Collections on sales
Expenses 200 88 Net share in loss
Cash settlement – receipt 92
Joint operation - B
Purchases 80 102 Net share in loss
60 Collections on sales
10 Collections on other income
92 Cash settlement - payment
In the settlement, B will pay A cash of ₱92.
8. A, B, and C formed a joint operation which was completed during the year. A is the appointed
manager who is entitled to a 10% bonus of profit before bonus. Profit after bonus to A is divided
equally among the joint operators. The accounts of B and C show the following balances:
Books of B Books of C
Account with A 4 Cr. 4 Cr.
Account with B 12 Cr.
Account with C 14 Dr.
Unsold merchandise was charged to A at a cost of ₱22.
How much is C’s cash settlement?
a. 18 payment
b. 10 receipt
c. 8 payment
d. 8 receipt
Solution:
The joint operation’s profit is computed as follows:
Joint operation
Account with A* 4 14 Account with C
Account with B 12 22 Unsold inventory
20 Profit before bonus - credit balance
*Observe that the account with A is included only once in the T-account. The entries in the books of each
of the joint operators (for A’s transaction) are reconstructed below:
Books of A Books of B Books of C
a. Joint operation 4
Inventory** 4
Joint operation 4
Payable to A 4
Joint operation 4
Payable to A 4
**Assumed account.
Profit is allocated as follows:
 Allocation to: A B C Totals
Profit before bonus 20
Bonus to A (20 x 10%) 2 (2)
Profit after bonus 18
Equal allocation (18 ÷ 3) 6 6 6 (18)
As allocated 8 6 6 -
Cash settlement is determined as follows:
Joint operation – A
Contributions 4 22 Inventory taken
Net share in profit 8
10 Cash settlement - payment
Joint operation – B
Contributions 12
Net share in profit 6
Cash settlement – receipt 18
Joint operation – C
14 Withdrawals
Net share in profit 6
8 Cash settlement – payment
In the final settlement, B receives cash of ₱18 while A and C pay additional cash of ₱10 and
₱8, respectively.
9. A, B, and C formed a joint operation which was completed during the year. The accounts of the
joint operators show the following balances:
Books of A Books of B Books of C
Account with A - 2.5 Dr. 2.5 Dr.
Account with B 4 Dr. - 4 Dr.
Account with C 6.5 Cr. 6.5 Cr.
How much is B’s cash settlement?
a. 0
b. 2.5 payment
c. 4 payment
d. 4 receipt
Solution:
The joint operation’s profit is determined as follows:
Joint operation
2.5 Account with A
Account with C 6.5 4 Account with B
0 Profit before bonus
There is no profit or loss to be allocated. Cash settlement is determined as follows:
Joint operation - A
Contributions 2.5 Withdrawals
2.5 Cash settlement - payment
Joint operation - B
Contributions 4 Withdrawals
4 Cash settlement - payment
Joint operation - C
Contributions 6.5 Withdrawals
Cash settlement - receipt 6.5
In the final settlement, C receives cash of ₱6.5 while A and B pay cash of ₱2.5 and ₱4,
respectively, to C.
10.A, B, and C formed a joint operation. Profit or loss shall be divided equally. The following were
taken from the joint operation’s books:
Debit Credit
JO – Cash 20
Joint operation 5
B, Capital 15
 C, Capital 10
A’s share in the joint operation’s profit is ₱4. A agreed to be charged for the unsold merchandise as
of year-end.
How much is the cost of unsold merchandise charged to A?
a. 12
b. 17
c. 19
d. 25
Solution:
If A’s share in the joint operation’s profit is ₱4 and profit or loss is divided equally between the three
joint operators, then total profit of the joint operation must be ₱12 (i.e., ₱4 for each joint operator
multiplied by 3 joint operators).
Unsold merchandise is squeezed after placing relevant data in the joint operation account as
shown below:
Joint operation
Debit balance 5
17 Unsold merchandise (squeeze)
12 Profit - credit balance (₱4 x 3)
11.A, B, and C formed a joint operation. The following were taken from the joint operation’s books:
Debit Credit
JO – Cash 20
B, Capital 15
C, Capital 22
The cost of unsold inventory is ₱18. The joint operation’s profit is ₱11.
How much is the balance of the joint operation account before distribution of profit?
a. 11
b. 29
c. 7
d. 18
Solution:
Joint operation
Debit balance (squeeze) 7
18 Unsold merchandise
11 Profit - credit balance
Use the following information for the next two questions:
A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:
ABC
Joint operation 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4
12.How much is the joint operation’s sales?
a. 70
b. 10
c. 90
d. 30
Joint operation
Initial contributions
(10 x 3) 30
Expenses (5 + 2 + 3) 10 70 Sales (squeeze)
30 Credit balance (8 + 10 + 12)
13.How much is the cash settlement to A?
a. 45 receipt
b. 45 payment
c. 20 receipt
 d. 20 payment
The joint operation’s profit is computed as follows:
Joint operation
Initial contributions
(10 x 3) 30 70 Sales
Expenses (5 + 2 + 3) 10 15 Unsold merchandise (5 + 6 + 4)
45 Profit - net credit balance
Cash settlement to A is computed as follows:
Joint operation – A
Contributions 10 5
Inventory
taken
Share in profit (45 ÷ 3) 15
Cash settlement – receipt 20
Notice that the expenses paid by A are not included as contribution because the expenses
were paid using JO-Cash.
14.On January 1, 20x1, PATRIMONY Co. entered into a joint agreement classified as a joint venture.
For an investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE Joint
Venture, Inc. During the year, HERITAGE Joint Ventures, Inc. reported profit of ₱4,000,000 and
other comprehensive income of ₱800,000, for a total comprehensive income of ₱4,800,000.
HERITAGE Joint Venture, Inc. declared dividends of ₱2,400,000 during the year. How much is
the carrying amount of the investment in joint venture on December 31, 20x1?
a. 2,720,000 b. 2,000,000 b. 2,480,000 d. 4,160,000
A
Solution:
Initial investment, Jan. 1 2,000,000
Share in profit of joint venture (4M x 30%) 1,200,000
Share in OCI of joint venture (800K x 30%) 240,000
Dividends received from joint venture (2.4M x 30%) (720,000)
Investment in joint venture, Dec. 31, 20x1 2,720,000
15.An arrangement of which two or more parties have joint control.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint
16. The contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.
a. significant influence c. control
b. joint control d. contractual control
17.A joint arrangement whereby the parties that have joint control of the arrangement have rights to
the net assets of the arrangement.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint
18.A joint arrangement whereby the parties that have joint control of the arrangement have rights to
the assets, and obligations for the liabilities, relating to the arrangement.
a. joint operation c. joint arrangement
b. joint venture d. elbow joint
19.A party to a joint operation that has joint control of that joint operation.
a. joint operationist c. joint arranger
b. joint venturer d. joint operator
20.A party to a joint venture that has joint control of that joint venture.
a. joint venturist c. joint arrangementor
b. joint operationer d. joint venturer
21.According to PFRS 11, it is an entity that participates in a joint arrangement, regardless of whether
that entity has joint control of the arrangement.
a. joint arranger c. minority interest
b. party to a joint arrangement d. participating cat
22.According to PFRS 11, it is a separately identifiable financial structure, including separate legal
 entities or entities recognized by statute, regardless of whether those entities have a legal
personality.
a. separate vehicle c. special purpose vehicle
b. special purpose entity d. public utility vehicle
23. In a joint arrangement, which of the following establishes joint control by the parties?
a. mutual sharing of control c. contractual arrangement
b. ownership interest of more than 20% d. stock certificate
24.A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate vehicle.
a. joint operation c. joint arrangement
b. joint venture d. can be either a or b
“Be joyful in hope, patient in affliction, faithful in prayer.” (Romans 12:12)
- END -
ANSWERS TO QUIZ 6 JOINT ARRAGEMENT
1. C 6. D
2. B 7. B
3. B 8. A
4. A 9. C
5. D 10. D
25.The following is the condensed balance sheet of the partnership Jo, Li and Bi who share
profits and losses in the ratio of 4:3:3.
Cash P 180,000 Accounts, payable P 420,000
Other assets 1,660,000 Bi, Loan 60,000
Jo, receivable 40,000 Jo, Capital 620,000
Li, Capital 400,000
__ Bi, Capital 380,000
Total P 1,880,000 Total P1,880,000
Assume that the assets and liabilities are fairly valued on the balance Sheet and the partnership
decides to admit Mac as a new partner, with a 20% interest. No goodwill or bonus is to be
recorded. How much Mac should contribute in cash or other assets?
a. P 350,000
b. P 280,000
c. P 355,000
d. P 284,000
26.Fernando and Jose are partners with capital balances of P30,000 and P70,000, respectively.
Fernando has a 30% interest in profits and losses. All assets of the partnership are at fair
market value except equipment with book value of P300,000 and fair market value of
P320,000.
At this time, the partnership has decided to admit Rosa and Linda as new partners. Rosa
contributes cash of P55,000 for a 20% interest in capital and a 30% interest in profits and losses.
Linda contributes cash of P10,000 and an equipment with a fair market value of P50,000 for a
25% interest in capital and a 35% interest in profits and losses. Linda is also bringing special
expertise and clients contact into the new partnership. Using the bonus method, what is the
amount of bonus?
a. P24,750
b. 18,250
c. 14,000
d. 7,500
27.The capital accounts of the partnership of Nakpil, Ortiz, and Perez on June 1, 2005 are
presented below with their respective profit and loss ratios:
Nakpil P 139,200 1/2
Ortiz 208,800 1/3
Perez 96,000 1/6
P 444,000
On June 1, 2005, Quizon is admitted to the partnership when he purchased, for P 132,000, a
proportionate interest from Nakpil and Ortiz in the net assets and profits of the partnership. As a
 result of a transaction, Quizon acquired a one-fifth interest in the net assets and profits of the
firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized
by Nakpil and Ortiz upon the sale of a portion of their interest in the partnership to Quizon?
a. P 0
b. P 43,200
c. P 62,400
d. P 82,000
28. In the AAA-BBB partnership, AAA and BBB had a capital ratio of 3:1 and a profit and loss
ratio of 2:1, respectively. The bonus method was used to record CCC’s admittance as a new
partner. What ratio would be used to allocate, to AAA and BBB, the excess of Colter’s
contribution over the amount credited to Colter’s capital account?
a. AAA and BBB’s new relative capital ratio
b. AAA and BBB’s new relative capital profit and loss ratio
c. AAA and BBB’s old capital ratio
d. AAA and BBB’s old profit and loss ratio
29.When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's
interest exceeded Mill's capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.
30.C, D and E are partners with capital balances on December 31, 20x1 of P300,000 and
P200,000 respectively. Profit are shared equally. E wishes to withdraw and it is agreed that
she is to take certain furniture and fixtures with second hand value of P50,000 and note for
the balance of her interest. The furniture and fixtures are carried in the books at P65,000.
Brand new, the furniture and fixtures may cost P80,000. E’s acquisition of the second-hand
furniture will result to:
a. Reduction in capital of P15,000 each for C and D.
b. Reduction in capital of P10,000 for E.
c. Reduction in capital of P5,000 each for C and D and E.
d. Reduction in capital of P7,500 each for C and D.
31.In May 1998, Imelda, a partner of an accounting firm decided to withdraw when the partners’
capital balances were: Mikee, P600,000; Raul, P600,000; Imelda, P400,000. It was agreed
that Imelda is to take the partnership’s fully depreciated computer with a second hand value
of P24,000 that cost the partnership P36,000.
If profits and losses are shared equally, what would be the capital balances of the remaining
partners after the retirement of Imelda?
Mikee Raul _
a. P600,000 P600,000
b. 592,000 592,000
c. 608,000 608,000
d. 612,000 612,000
32.On June 30, 1998, the balance sheet for the partnership of Coll, Maduro, and Prieto, together
with their respective profit and loss ratios, was as follows:
Assets, at cost P 180,000
Coll, loan P 9,000
Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total P 180,000
Coll decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P 216,000 at June 30, 1998. It was agreed that the partnership would pay Coll
P 61,200 cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full.
No goodwill is to be recorded. After Coll’s retirement, what is the balance of Maduro’s capital
account?
a. P 36,450
 b. 39,000
c. 45,450
d. 46,200
33.On June 30, 2009, the balance sheets of the partnership of AAA, BBB and CCC, together
with their respective profit and loss ratios, were as follows:
Assets, at cost P 180,000
AAA, loan P 9,000
AAA, capital (20%) 42,000
BBB. Capital (20%) 39,000
CCC , capital (60%) 90,000
Total P 180,000
AAA has decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 2009. It was agreed that the partnership
would pay AAA P61,200 cash for AAA’s partnership interest, including AAA’s loan which
is to be repaid in full. No goodwill is to be recorded. After AAA’s retirement, what is the
balance of BBB’s capital account?
a. P36,450 c. P45,450
b. P39,000 d. P46,200
34.On June 30, the balance sheet for the partnership of Williams, Brown and Lowe together
with their respective profit and loss ratios was as follows:
Assets, at cost P300,000
Williams, loan P 15,000
Williams, capital (20%) 70,000
Brown, capital (20%) 65,000
Lowe, capital (60%) 150,000
Total P300,000
Williams has decided to retire from the partnership and by mutual agreement the assets are to be
adjusted to their fair value of P360,000 at June 30. It was agreed that the partnership would pay
Williams P102,000 cash for his partnership interest exclusive of his loan which is to be repaid in
full. No goodwill is to be recorded in this transaction. After William's retirement what are the
capital account balances of Brown and Lowe, respectively?
a. P65,000 and P150,000.
b. P72,000 and P171,000.
c. P73,000 and P174,000.
d. P77,000 and P186,000.
“So do not fear, for I am with you; do not be dismayed, for I am your God. I will strengthen you and help
you; I will uphold you with my righteous right hand.” (Isaiah 41:10)
- END –
SOLUTIONS:
1. A 620,000 + 400,000 + 380,000 = 1,400,000 x 80% = 1,750,000 x 20% = 350,000
2. B Total equity = 100,000 not revalued; Rosa 55,000 for 20%; Linda 60,000 for 25%; for a
total of P215,000. P215,000 x 55% = 118,250 – 100,000 = 18,250.
3. B 444,000 x 1/5 = 88,800; 132,000 – 88,800 = 43,200
4. D
5. C
6. C 65,000 – 50,000 = 15,000 impairment loss ÷ 3
7. C
Mikee Raul Imelda
600,000 600,000 400,000 1,600,000
8,000 8,000 8,000 24,000 fully depreciated
(408,000) (372,000)
608,000 608,000 - 1,252,000
1,216,000
8. C
C 20% M 20% P 60%
9,000 - - 9,000
 42,000 39,000 90,000 171,000
51,000 39,000 90,000 180,000
7,200 7,200 21,600 36,000
58,200 46,200 111,600
(61,200)
(3,000) (750) (2,250.00)
45,450 109,350
9. C
ABC
51,000 39,000 90,000 180,000
7,200 7,200 21,600 36,000
58,200 46,200 111,600
(61,200)
(3,000) (750)
- 45,450
10. B
WBL
20% 20% 60%
85,000 65,000 150,000
12,000 12,000 36,000 60,000
97,000 77,000 186,000
117,000
(20,000) (5,000) (15,000)
72,000 171,000
35. It refers to the implementation of a business plan to restructure or rehabilitate a corporation with
the hopes of increasing company value. In most cases, it involves changing the entity’s capital
structure.
a. transformation c. reorganization
b. mutation d. translation
36.The total unsecured liabilities without priority can be computed as
a. Unsecured creditors without priority plus deficiency of assets pledged to partially secured
creditors
b. Unsecured creditors without priority less estimated realizable value of assets pledged to
partially secured creditors
c. Sum of administrative expenses, unpaid employee salaries and benefits, and taxes and
assessments.
d. Total liabilities less priority claims.
37. It is a financial report which shows information on the progress of the liquidation process of a
corporation.
a. statement of affairs c. statement of realization and liquidation
b. statement of liquidating affairs d. statement of changes in net assets
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.
38.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
C Land and building at net selling price of 10,400,000
39.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
A Equipment at net selling price of 800,000
40.How much are the total free assets?
a. 2,788,800 b. 5,248,800 c. 4,048,800 d. 2,908,800
B
Solution:
Assets pledged to fully secured
creditors: Realizable value
Available for unsecured
creditors
 Land and building 10,400,000
Less: Loan payable (8,000,000)
Interest payable (60,000) 2,340,000
Assets pledged to partially secured creditors:
Equipment, net 800,000 -
Free assets:
Cash 160,000
Accounts receivable 668,800
Note receivable 400,000
Interest receivable 40,000
Inventory 1,640,000
Prepaid assets - 2,908,800
Total free assets 5,248,800
41.How much are the total net free assets?
a. 3,682,800 b. 4,048,800 c. 2,908,800 d. 3,628,800
D Solution:
Unsecured liabilities with priority: Secured and Priority
claims
Unsecured liabilities
without priority
Estimated admin. expenses 120,000
Accrued salaries 100,000
Current tax payable 1,400,000
Total unsecured
liabilities with priority
1,620,000 -
Fully secured creditors:
Loan payable 8,000,000
Interest payable 60,000
8,060,000 -
Partially secured creditors:
Note payable 1,200,000
Less: Equipment (800,000) 400,000
Unsecured liabilities without priority:
Accrued expenses, net of
accrued salaries
(884K – 100K) 784,000
Accounts payable 4,000,000 4,784,000
Total unsecured liabilities without
priority 5,184,000
Total free assets 5,248,800
Less: Total unsecured liabilities with priority (1,620,000)
Net free assets 3,628,800
42.How much are the total unsecured liabilities with priority?
a. 1,620,000 b. 220,000 c. 1,520,000 d. 100,000
A (See solution above)
43.How much are the total fully secured creditors?
a. 8,000,000 b. 8,060,000 c. 8,800,000 d. 9,620,000
B (See solution above)
44.How much are the total partially secured creditors?
a. 1,200,000 b. 1,260,000 c. 2,820,000 d. 3,920,000
A (See solution above)
45.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
D (See solution above)
46.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
B Solution:
Total unsecured liabilities w/o priority (see
above) 5,184,000
Multiply by: (100% - 70%* recovery) 30%
Deficiency 1,555,200
* See computation below.
47.What is the estimated recovery percentage of unsecured creditors without priority?
a. 75.85% b. 31.71% c. 70% d. 24.15%
C Solution:
Estimated recovery percentage of unsecured
creditors without priority =
Net free assets
Total unsecured liabilities without
priority
Total free assets 5,248,800
Less: Total unsecured liabilities with priority (1,620,000)
Net free assets 3,628,800
Divide by: Total unsecured liabilities without priority 5,184,000
Estimated recovery percentage of unsecured creditors without priority 70%
48.How much can the shareholders expect to recover from their equity interests?
a. 483 ,000 b. (478,800) c. (165,186) d. 0
D
49.Who created the first partnership business in the world?
a. Adam and Eve
b. Monkey and Turtle
c. Romeo and Juliet
d. Lapu-lapu and Magellan
e. None of these
50.BONUS