Midterm-bsa-31-key

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. b. c. d.

90 60 48 26

Solution: Profit or loss is computed as follows: Merchandise – A Purchases - A's cash Merchandise – B Freight - in – B

200 100 400 20

Joint operation 800 210

Sales – C Unsold inventory charged to C*

6. A and B formed a joint operation. The following were the transactions during the year:   Total purchases Total sales Expenses paid Other income

A 100 240 200

B 80 180 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 Purchases – B Expenses – A

100 80 200

240 180 10

Sales – A Sales – B Other income - B

50

Profit - credit balance

Profit is allocated as follows: Allocation to:

A

Profit for the year 10% commission on purchases: (10% x 100) – A (10% x 80) – B 20% commission on sales: (20% x 240) – A (20% x 180) – B

B

Totals 50

10 8

(10) (8)

36

(48) (36)

(26) 18

(52) 52 -

48

Total to be divided equally Allocation: (52 ÷ 2) Net share - as allocated

(26) 32

Cash settlement is determined as follows: Joint operation - A 100 240 200 32

Purchases Expenses Net share Cash settlement – receipt

Purchases Net share

Collections on sales

92

Joint operation - B 80 180 18 10

Collections on sales 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:   Total purchases Total sales Expenses paid Other income

A 100 120 200

B 80 60 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

Purchases – A Purchases – B Expenses – A

Joint operation 100 120 80 60 200 10

Loss - debit balance

190

  Sales - A Sales - B Other income - B

 

The loss is allocated as follows: Allocation to:

A

Loss during the year 20% commission on purchases: (10% x 100) – A (10% x 80) – B 25% commission on sales: (20% x 120) – A (20% x 60) – B Loss to be allocated equally Allocation: (244 ÷ 2) Net share - as allocated

B

Totals (190)

10 8

(10) (8)

12

(24) (12)

(122) (102)

(244) 244 -

24

(122) (88)

Cash settlement is determined as follows: Joint operation - A 100 200

Purchases Expenses Cash settlement – receipt

Purchases

Joint operation - B 80

120 88

Collections on sales Net share in loss

92

102 60 10

Net share in loss Collections on sales 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 Account with B Account with C

4 Cr.

4 Cr. 12 Cr.

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 B 12 22   20

  Account with C Unsold inventory 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:

a.

Books of A Joint operation Inventory**

4 4

Books of B Joint operation 4 Payable to A 4

Books of C Joint operation Payable to A

4 4

**Assumed account.

Profit is allocated as follows: Allocation to: Profit before bonus Bonus to A (20 x 10%) Profit after bonus Equal allocation (18 ÷ 3) As allocated

A

B

C

2

20 (2)

6 8

18 (18) -

Cash settlement is determined as follows: Joint operation – A Contributions 4 Net share in profit 8

6 6

6 6

22

Inventory taken

10

Cash settlement - payment Joint operation – B

Contributions

Totals

12

Net share in profit

6

Cash settlement – receipt

18

Joint operation – C

Net share in profit

14

Withdrawals

8

Cash settlement – payment

6

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:   Account with A Account with B Account with C

Books of A 4 Dr. 6.5 Cr.

Books of B 2.5 Dr. 6.5 Cr.

Books of C 2.5 Dr. 4 Dr.

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

Contributions

Joint operation - C 6.5    

Cash settlement - receipt

6.5

Withdrawals

 

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

JO – Cash Joint operation B, Capital C, Capital

Credit

20 5 15 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 B, Capital C, Capital

20 15 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:   Joint operation Expenses paid from JO cash Value of inventory taken

A 8 Cr. 5 5

B 10 Cr. 2 6

C 12 Cr. 3 4

12. How much is the joint operation’s sales?

a. b. c. d.

70 10 90 30

Joint operation Initial contributions (10 x 3)

Expenses (5 + 2 + 3)

13. How much is the cash settlement to A?

a. 45 receipt b. 45 payment

30 10

70

Sales (squeeze)

30

Credit balance (8 + 10 + 12)

c. 20 receipt d. 20 payment The joint operation’s profit is computed as follows: Joint operation Initial contributions 30 10

(10 x 3)

Expenses (5 + 2 + 3)

70 15

Sales

45

Profit - net credit balance

Unsold merchandise (5 + 6 + 4)

Cash settlement to A is computed as follows: Joint operation – A Contributions Share in profit (45 ÷ 3)

10 15

Cash settlement – receipt

20

5

Inventory taken

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 Share in profit of joint venture (4M x 30%) Share in OCI of joint venture (800K x 30%) Dividends received from joint venture (2.4M x 30%) Investment in joint venture, Dec. 31, 20x1

15. An arrangement of which two or more parties have joint control.

a. joint operation

c. joint arrangement

b. joint venture

d. elbow joint

2,000,000 1,200,000 240,000 (720,000) 2,720,000

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)

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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 Other assets Jo, receivable

P

180,000 1,660,000 40,000

__ Total

P 1,880,000

Accounts, payable Bi, Loan

P

420,000 60,000

Jo, Capital

620,000

Li, Capital

400,000

Bi, Capital

380,000

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 AAA, capital (20%)

P

9,000 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 b. P39,000

c. P45,450 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)

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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 Mik ee 600,000 8,000

Raul 600,000 8,000

608,000

608,000 1,216,000

Imelda 400,000 8,000 (408,000) -

1,600,000 24,000 fully depreciated (372,000) 1,252,000

8. C C 20% 9,000 42,000 51,000 7,200 58,200 (61,200) (3,000)

9. C

M 20% 39,000 39,000 7,200 46,200 (750) 45,450

P 60% 90,000 90,000 21,600 111,600 (2,250.00) 109,350

9,000 171,000 180,000 36,000

A 51,000 7,200 58,200 (61,200) (3,000) -

B 39,000 7,200 46,200

C 90,000 21,600 111,600

180,000 36,000

(750) 45,450

10. B W

B

L

20% 85,000 12,000 97,000 117,000 (20,000)

20% 65,000 12,000 77,000

60% 150,000 36,000 186,000

(5,000) 72,000

(15,000) 171,000

60,000

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 b. statement of liquidating affairs

c. statement of realization and liquidation 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 Accounts receivable Note receivable Inventory Prepaid assets Noncurrent assets: Land Building, net Equipment, net Total assets LIABILITIES AND EQUITY Current liabilities: Accrued expenses Current tax payable Accounts payable Noncurrent liabilities: Note payable (secured by equipment) Loan payable (secured by land and building)

160,000 880,000 400,000 2,120,000 40,000 3,600,000 2,000,000 8,000,000 1,200,000 11,200,000 14,800,000

884,000 1,400,000 4,000,000 6,284,000 1,200,000 8,000,000 9,200,000

Capital deficiency: Share capital Retained earnings (deficit) Total liabilities and equity

2,000,000 (2,684,000) (684,000) 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

B Solution: Assets pledged to fully secured creditors: Land and building Less: Loan payable Interest payable

d. 2,908,800

Realizable value 10,400,000 (8,000,000) (60,000)

Assets pledged to partially secured creditors: Equipment, net

Free assets: Cash Accounts receivable Note receivable Interest receivable Inventory Prepaid assets Total free assets

800,000

160,000 668,800 400,000 40,000 1,640,000 -

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

Available for unsecured creditors

2,340,000

-

2,908,800 5,248,800

D Solution: Secured and Priority claims 120,000 100,000 1,400,000

Unsecured liabilities with priority: Estimated admin. expenses Accrued salaries Current tax payable Total unsecured liabilities with priority Fully secured creditors: Loan payable Interest payable

Partially secured creditors: Note payable Less: Equipment

Unsecured liabilities without priority: Accrued expenses, net of accrued salaries (884K – 100K) Accounts payable Total unsecured liabilities without priority

1,620,000

-

8,000,000 60,000 8,060,000

-

1,200,000 (800,000)

400,000

784,000 4,000,000

4,784,000 5,184,000

Total free assets Less: Total unsecured liabilities with priority Net free assets

5,248,800 (1,620,000) 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

Unsecured liabilities without priority

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) Multiply by: (100% - 70%* recovery)

5,184,000 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 Less: Total unsecured liabilities with priority Net free assets Divide by: Total unsecured liabilities without priority Estimated recovery percentage of unsecured creditors without priority 48. How much can the shareholders expect to recover from their equity interests?

a. 483 ,000

b. (478,800)

c. (165,186)

d. 0

5,248,800 (1,620,000) 3,628,800 5,184,000 70%

D 49. Who created the first partnership business in the world?

a. b. c. d. e.

Adam and Eve Monkey and Turtle Romeo and Juliet Lapu-lapu and Magellan None of these

50. BONUS