Question 1 - Settlement of Priority Claims
The following data are taken from the statement of affairs of the Monroe Company. (Assume that the realizable values of assets are accurate.)
Assets pledged with fully secured creditors (realizable value, $190,000) $240,000
Assets pledged with partially secured creditors (realizable value, $90,000) 110,000
Free assets (realizable value, $102,000) 160,000
Fully secured creditor claims 91,000
Partially secured creditor claims 120,000
Unsecured creditor claims with priority 30,000
General unsecured creditor claims 350,000
Required: Compute the amount that will be paid to each class of creditor.
Question 2 - Trustee Accounting
TRX Company has been forced into receivership, and you have been appointed trustee. You decide to open your own set of books in order to distinguish more clearly between trans-actions occurring before and after your appointment. The following account balances were reported on September 1, 2009:
Cash $ 26,700
Accounts Receivable 130,400
Inventory 191,900
Property and Equipment 590,400
Total $939,400
Allowance for Uncollectibles $ 16,000
Accumulated Depreciation 211,500
Accounts Payable 308,400
Capital Stock 800,000
Retained Earnings (deficit) (396,500)
Total $939,400
In the four months immediately after your appointment, the following transaction occurred:
1. Sales were made in the amount of $296,000, of which $31,500 were cash sales.
2. Receivables were collected in the following amounts:
Old receivables $ 76,800
New receivables 242,200
Question 3 - Trustee Accounting and Combining Workpaper
Plum Company has been in receivership for the past five months. At the beginning of this period, the following trial balance was taken from Plum Company's books.
Cash $ 4,500
Accounts Receivable 15,000
Inventory 142,650
Property and Equipment 90,600
$252,750
Allowance for Uncollectibles $ 3,750
Accumulated Depreciation 36,825
Accounts Payable 143,175
Capital Stock 135,000
Retained Earnings (deficit) (66,000)
$252,750
The trustee, P. Smith, who was appointed to manage the debtor's business during the period of liquidation, opened a new set of books and took title to Plum Company's assets on June 1, 2009. The activities of the trustee during the five-month period ended October 31, 2009, are as follows:
1. The trustee sold all Plum Company's inventory for $153,000, of which $75,000 represented credit sales.
2. Cash was collected on old receivables, $11,250, and on new receivables, $64,500.
3. Expenses paid during the period were
Operating expenses $11,850
Trustee expenses 3,000
4. The trustee recorded depreciation expense of $5,250.
5. The trustee paid off all the accounts payable.
6. Estimated uncollectibles on the new accounts receivable were $2,250; the trustee wrote off all the remaining old accounts receivable.
7. The trustee sold all the property and equipment for $43,500.
Required: Prepare a realization and liquidation account for Plum Company to cover the five-month period of receivership (June 1, 2009, to October 31, 2009). Use the alternate approach to present the components of the net gain or net loss, and include a copy of the trustee's cash account for the period.
Question 4 - Statement of Affairs and Deficiency Account
Miner Company is being forced into bankruptcy. The company's creditors and stockholders have requested an estimate of the results of a liquidation of the company. Miner's trial balance follows:
Miner Company Trial Balance
May 31, 2009
Debit Credit
Cash $ 6,000
Accounts Receivable 63,000
Allowance for Bad Debts $ 2,000
Notes Receivable 50,000
Accrued Interest on Notes Receivable 1,200
Inventory 60,000
Buildings 182,000
Accumulated Depreciation-Buildings 63,000
Equipment 14,600
Accumulated Depreciation-Equipment 1,400
Prepaid Insurance 1,100
Goodwill 8,500
Accrued Wages-with Priority 6,000
Taxes Payable-with Priority 2,400
Accounts Payable 170,000
Notes Payable 80,000
Accrued Interest Payable 1,600
Common Stock 110,000
Retained Earnings (deficit) 50,000
$436,400 $436,400
The assets are expected to bring cash on conversion in the following amounts:
Accounts receivable $50,000
Notes receivable including $1,000 accrued interest 40,800
Inventory 30,000
Building 75,000
Equipment 4,200
Prepaid insurance 400
The notes receivable are pledged as security on a note payable of $40,000. A note payable of $20,000 is secured by a lien on the building, and the equipment is pledged as security on a note payable of $10,000. One-half of the interest payable relates to the $40,000 note payable; the other half of the interest payable relates to the $20,000 note payable. There is no accrued interest on the other notes payable.
Required: Prepare a statement of affairs as of May 31, 2009. Include a deficiency account, and determine the estimated dividend rate to the general unsecured creditors.