Multiple Choices Questions

1. Philippine National Bank holds a P500,000 note secured by a building owned by Luigi Software, which has filed bankruptcy. If the property has a book value of P600,000 and a fair market value of P450,000, what is the best way to describe the notes held by Philippine National Bank? The bank has

a. A secured claim of P500,000b. An unsecured claim of P500,000c. A secured claim of P450,000 and an unsecured claim of P50,000d. A secured claim of P50,000 and an unsecured claim of P50,000

2. X and Y Inc. owes the Xylo Corporation P60,000 on account, which is secured by accounts receivable with a book value of P50,000. The unsecured portion is considered claim under the bankruptcy law, X and y has filed for bankruptcy. It’s the statement opf affairs lists the accounts receivable securing the Xylo account with an estimated realizable value of P45,000. If the dividend to general unsecured creditors is 80%, how much can Xylo expect to receive?

a. P 60,000 c. P57,000b. 58,000 d. 48,000

3. P Corporation is a parent, having purchased 60% of S Company’s common stock at par value for P600,000. S Company is in financial difficulty. The parent granted an unsecured loan of P200,000 to the subsidiary. An accounting statement affairs for S Company shows a dividend of 30%. P Corporation can expect to receive on the loan of appropriately:

a. P120,000 c.P36,000b. P 60,000 d. P 0

4. P Corporation is a parent, having purchased 60% of S Company’s stock at par value for P600,000. S Company is in financial difficulty. The parent granted as unsecured loan of P200,000 to the dividend of affairs for S Company shows a dividend of 30%. P Corporation can expect to receive payment for its Investment in S Company of approximately:

a. P600,000 c. P108,000b. 180,000 d. P 0

5. Kent, Inc. has forced into bankruptcy and has begun to liquidate. Unsecured claims will be paid at the rate of 40 cents on the peso. Apex Co. holds a non-interest bearing note receivable from Kent in the amount of P100,000, collateralized by machinery with a liquidation value of P25,000. The total amount realized by Apex in this note receivable is:

a. P25,000 c. P55,000b. P40,000 d. P65,000

6. Seco 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 forty cents

on the peso. Hale holds a P30,000 non-interest bearing note receivable from Seco collateralized by an asset with the book value of P35,000 and a liquidation value of P5,000. The amount to be realized by Hale on this note is

a. P5,000 c. P15,000b. P12,000 d. P17,000

7. Blueprint, Inc. signed note payable to its bank for P100,000. Accrued interest on the note on February 28,2004 amounts of P250. The note is secured by inventory with a book value of P12,000. The inventory is sold for P8,000 and unsecured creditors received 30% of their claims. The bank should receive the following amount in settlement of the note and interest:

a. P10,250 c. P8,675b. P10,000 d. P8,000

8. The trust for Ardolio, Inc. prepares a statement of affairs which shows that unsecured creditors whose claims total P60,000 may expect to receive approximately P36,000 if assets are sold for the benefit of the creditors.

Michael is an employee who is owed P750. Meldan holds a note for P1,000 on which interest of P50 is accrued;

nothing has been pledged on the note Compboy holds a note for P6,000 on which interest of P300 is accrued;

securities with a book value of P6,500 and a present market value of P5,000 are pledged on the note.

Serpor holds a note for P2,500 on which interest of P150 is accrued property with a book value of P2,000 and a present market value of P3,000 is pledged on the note.

How much may each of the following creditors hope to receive?

Michael Meldan Compboy Serpor a. P 0 P 0 P 0 P 0b. 90 0 6,300 2,390c. 350 1,050 5,780 0d. 750 630 5,780 2,650

9. Erap Co. filed a voluntary bankruptcy petition on August 15,2008, and the statement of affairs reflects the following amounts:

Book Value Estimated Current Value

Assets:Assets pledged with fully secured creditors P300,000 P370,000Assets pledged with partially secured

Creditors ……………………........ 180,000 120,000Free assets………………………………... 420,000 320,000

P 900,000 P 810,000

Liabilities:Liabilities with priority…………………. P 70,000Fully secured creditors…………………. 260,000Partially secured creditors ……………… 200,000Unsecured creditors…………………….. 540,000

P 1,070,000

Assume that the assets are converted to cash at the estimated current values and the business is liquidated. What amount of cash will be available to pay unsecured nonpriority claims?a. P240,000 c. P320,000b. 280,000 d. 360,000

10. Zamora and Co., Inc. purchased a Cadillac automobile with a little cash down and signed a note, secured by the Caddillac, for 48 easy monthly payments. When the company files for bankruptcy, the balance due on the Cadillac amount to P6,000,000. The car has a book value of P8,000,000 and a net realizable value of P4,000,000. The unsecured creditors of Zamora and Co. can expect to receive 50 percent of their claims. In the liquidation, the bank that holds the note on the Cadillac should receive:

a. P240,000 c. P320,000b. 280,000 d. 360,000

11. The following data are provided by the Troubled Company:

Assets at book Value………………………………. P150,000Assets at net realizable value………………………. 105,000Liabilities at book value:

Fully secured mortgage…………………….. 60,000Unsecured accounts and notes payable ……. 70,000

Unrecorded liabilities:Interest on bank notes………………………. 50,000Estimated cost of administering estate……... 6,000,000

The court has appointed a trustee to liquidate the company.

The journal entry made by the trustee to record the assets and liabilities should include an estate deficit of:a. P31,500 c. P25,500b. 31,000 d. 25,000

12. Using the same information in no. 11. the statement of affairs prepared by the trustee at this time should include an estimated deficiency to unsecured creditors of:

a. P45,000 c. P31,500b. 39,000 d. 25,000

13. Nah Lugi Co., is in bankruptcy and is being liquidated by a court-appointed trustee. The financial report that follow was prepared by the trustee just before the final cash distribution:

Assets:Cash …………………………….. P 100,000

Approved claims:Mortgage payable (secured by property

That was sold for P 50,000)………….. P 80,000Accounts payable, unsecured …………………. 50,000Administrative expenses payable,

Unsecured……………………………… 8,000Salaries payable, unsecured……………………. 2,000

P 140,000

The administrative expenses are for trustees and other costs of administering the debtor corporation’s estate.

How should the P100,000 be distributed to the following creditors?

Unsecured Partially Unsecured Creditors Secured Creditorswith Priority Creditors without Priority

a. P 0 P 80,000 P20,000b. 10,000 80,000 10,000c. 5,000 65,000 25,000d. 10,000 65,000 25,000

14. On December 18, 2008, the statement of affairs of Downside Company, which is in bankruptcy liquidation, included the following:

Assets pledged for fully secured liabilities……………. P100,000Assets pledged for partially secured liabilities………… 40,000Free Assets ……………………………………………. 120,000Fully Secured liabilities ………………………………. 80,000Partially secured liabilities ……………………………. 50,000Unsecured liabilities with priority ……………………. 60,000Unsecured liabilities without priority ………………… 90,000

Compute the estimated amount to be paid to:

Fully Unsecured Partially UnsecuredSecured Liabilities Secured LiabilitiesLiabilities w/ Priority Liabilities w/o Prioritya. P80,000 P60,000 P50,000 P70,000b. 64,000 60,000 48,000 88,000c. 80,000 48,000 60,000 72,000d. 80,000 60,000 48,000 72,000

15. Amounts related to the statement of affairs of Windup Company, in a bankruptcy liquidation as April 1, 2008, were as follows:

Assets pledged for fully secured liabilities ……………… P80,000Assets pledged for partially secured liabilities…………… 50,000Free Assets……………………………………………….. 272,000Fully secured liabilities ………………………………….. 60,000Partially secured liabilities ………………………………. 80,000Unsecured liabilities with priority ………………………. 40,000Unsecured liabilities w/o priority ……………………….. 330,000

Compute the: (1) total estimated deficiency to unsecured creditors, and (2) the costs per peso that unsecured creditors may expect to receive from Windup Company.

a. (1) P 78,000; (2) P.76 c. (1) P108,000;(2) P.81b. (1) P108,000; (2) P.70 d. (1) P158,000; (2) P.61

16. The following data were taken from the statement of affairs for Liquo Company:

Assets pledged for fully secured liabilities(fair value, P75,000) ……………………………… P 90,000

Assets pledged to partially secured liabilities (fair value, P52,000)………………………………. 74,000

Free assets (fair value, P40,000)…………………………... 70,000Unsecured liabilities w/ priority …………………………... 7,000Fully secured liabilities …………………………………… 30,000Partially secured liabilities ………………………………... 60,000Unsecured liabilities w/o priority …………………………. 112,000

Compute the; (1) total estimated deficiency to unsecured creditors, and (2) the expected recovery per peso of unsecured per peso of unsecured claims.a. (1) 42,000; (2) P.65 c. (1) P 0; (2) P 1.00b. (1) 3,000; (2) P .98 d. (1) P42,000; (2) P .70

17. Katherine, a CPA, has prepared a statement of affairs. Assets which there are no claims or liens are expected to produce P70,000, which must be allocated to

unsecured claims of all classes totaling P105,000. The following are some of the claims outstanding:

1. Accounting fees for Katherine, P1,500.2. An unrecorded note for P1,000, on which P60 of interest has accrued, held by

Angie.3. A note for P3,000 secured by P4,000 receivables, estimated to be 605 collectible

held by Joy.4. A P1,500 note, on which P30 of interest has accrued, held by Joyots. Property

with a book value of P1,000 and a market value of P1,800 is pledged to guarantee payment of principal and interest.

5. Unpaid income taxes of P3,500.

Compute the estimated payment to partially secured creditors:a. P1,060 c. P2,490b. P1,950 d. P2,790

18. The creditors if the Rogerod Corporation agreed to liquidation based on the statement of affairs, suggested that unsecured creditors, without priority would receive approximately P.60 on the peso. The unsecured creditors are interested in determining whether the preliminary estimate still seems appropriate. The trustee was originally assigned noncash assets of P1,480,000 and creditors claims as follows: fully secured,P670,000; partially secured, P400,000; unsecured with priority, P200,000, and unsecured without priority, P320,000. Assets with a total book value of P45,000 and unsecured liabilities (without priority) of P35,000 were subsequently discovered. Assets with a total book value of P740,000 were sold for P715,000 net. Fully secured liabilities of P280,000 were paid. Remaining liquidation expenses were estimated to be P30,000.

Assume the remaining noncash assets have an estimated net realizable value as follows:

Assets traceable to fully secured creditors ………………. P240,000Assets traceable to partially secured creditors …………... 110,000Remaining Assets ………………………………………... 382,000

Determining the revised estimate of the dividend to be receive by unsecured creditors without priority:a. 100.00%b. 66.17%c. 45.97%d. Cannot be determined

19. Palubog Co. is insolvent and its statement of affairs shows the following information:

Estimate gains on realization of assets …………………. P1,440,000Estimated losses on realization of assets ……………….. 2,000,000Additional assets ……………………………………….. 1,280,000Additional liabilities ……………………………………. 960,000Capital Stock …………………………………………… 2,000,000Deficit ………………………………………………….. 1,200,000

The deficiency pro-rate on the peso to stockholders is :a. P.30b. P.43c. P.57d. P.70

20. Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement of realization is presented below:

Assets:Assets to be realized ………………………. P1,375,000Assets acquired …………………………….. 750,000Assets realized ……………………………... 1,200,000Assets not realized …………………………. 1,375,000

Liabilities:Liabilities liquidated ……………………….. P1,875,000Liabilities not liquidated ……………………. 1,700,000Liabilities to be liquidated ………………….. 2,250,000Liabilities assumed …………………………. 1,625,000

Revenues and Expenses:Supplementary charges …………………….. P3,125,000Supplementary credits ……………………… 2,800,000

The net gain (loss) for three months period ending March 31 is:a. P250,000b. (325,000)c. P425,000d. P750,000

Items 21 through 33 are based on the following data:

The Palubog Company has decided to seek liquidation after previous restructuring and quasi-reorganization attempts failed. The company has the following condensed balance sheet as May 1, 2008:

Assets Liabilities and Stockholder’s Equity Cash ……… …………... P120,000 Accrued payroll …………….P40,000Receivables (net)………. P280,000 Loans from officer …………. 50,000Inventory ……………… 70,000 Accounts payable …………… 60,000Prepaid expenses ……… 1,000 Equipment loan payable ……. 360,000Plant assets ……………. 300,000 Business loan payable ………. 180,000Goodwill ……………… 39,000 Common Stock ……………….60,000

Deficit ………………………. (48,000)Total…………… P702,000 Total …………… P702,000

The equipment loan payable is secured by specific plat assets having a book value of P300,000 and a realizable value of P350,000. Of the accounts payable, P40,000 is secured by inventory which has cost of P40,000 and a liquidation value of P44,000. The balance of the inventory has a realizable value of P32,000. Receivables with a book value and market value of P100,000 and P80,000 respectively have been pledge as collateral on the business loan payable. The balance of the receivables have a realizable value of P150,000.

21. Assuming trustee expenses of P12,000 in addition to recorded liabilities, which of the remaining unsecured creditors has the next highest order of priority.

a. Accrued payrollb. Equipment loan payable c. Loan from officerd. Business loan payable

22. The realizable value of assets pledge with fully secured creditors is:a. P459,000b. 44,000c. 40,000d. 489,000

23. Of those creditors who are partially secured, their unsecured amounts are:a. P430,000b. 110,000c. 540,000d. 120,000

24. The total realizable value of free assets to unsecured creditors before unsecured creditors with priority is:

a. P628,000b. 232,000c. 220,000d. 198,000

25. The dividend to unsecured creditors or the expected recovery percentage of unsecured creditors (rounded) is :

a. 90%b. 100%c. 88%d. 76%

26. Estimated deficiency to unsecured creditors is :a. P -0-b. 22,000c. 2,000d. 12,000

27. Estimated loss as asset disposition is :a. P51,000b. 89,000c. 51,000d. 90,000

28. Estimated gain as asset disposition is:a. P56,000b. 54,000c. 52,000d. 6,000

29. Estimated amount paid to unsecured creditors with priority is :a. P10,000b. 30,000c. 40,000d. 110,000

30. Estimated amount paid to fully secured creditors is:a. P40,000b. 390,000c. 470,000d. 430,000

31. Estimated amount paid to unsecured creditors without priority is :a. P70,000b. 61,600c. 20,000d. 50,000

32. Estimated payment to partially secured creditors is :a. P358,800b. 516,800c. 168,000d. 430,000

33. Estimated payment to creditors is (discrepancy is expected due to rounding off).a. P580,000b. 659,600c. 571,000d. 668,400