Solution manual advanced accounting 4e jeter ch10

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 10 ANSWERS TO QUESTIONS Extension of payment periods The debtor continues to manage the business, and the creditors merely extend the payment due date(s) for existing debts Composition agreements A composition agreement is an agreement between the debtor company and its creditors under which the creditors agree to accept less than the full amount of their claims Formation of a creditor’s committee The debtor company and its creditors agree to form a committee of creditors responsible for managing the debtor’s business affairs for the period during which plans are developed to rehabilitate, reorganize, or liquidate the business Voluntary assignment of assets An insolvent debtor elects to voluntarily place his property under the control of a trustee for the benefit of his creditors In a voluntary petition, the debtor files a petition with a bankruptcy court for liquidation under Chapter or for reorganization under Chapter 11 The bankruptcy judge may refuse a voluntary petition if refusal is considered to be in the best interest of the creditors In an involuntary petition, creditors initiate the action by filing a petition for liquidation or reorganization with the bankruptcy court If there are twelve or more creditors, the petition must be signed by three or more of such creditors whose claims aggregate at least $5,000 more than the value of any liens on the property of the debtor If there are fewer than twelve creditors, the petition may be filed by one or more of such creditors whose claims aggregate at least $5,000 more than the value of any liens on the debtor’s property Fully secured claims Those claims with liens against specific assets whose realizable value is equal to or in excess of the claim Partially secured claims Those claims with liens against specific assets whose realizable value is less than the amount of the claim Unsecured claims Those claims that are not secured by liens against specific assets and are, therefore, paid from whatever total money remains after secured creditors are satisfied Some unsecured claims take priority over others under federal bankruptcy law 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com The five categories of unsecured claims with priority are: a Administrative expenses, fees, and charges incurred in administering the bankrupt’s estate b Unsecured claims for wages, salaries, or commissions earned by an employee within 90 days before the date of filing a petition in bankruptcy, limited to the extent of $4,650 per employee c Claims for contributions to employee benefit plans from services rendered within 180 days before the date of filing a petition in bankruptcy, but subject to certain limitations d Unsecured claims of individuals, to the extent of $2,100 for each such individual, arising from the deposit of money in connection with the purchase, lease, or rental of property or services that were not delivered or performed e Claims of governmental units for unpaid taxes Dividends represent the final distribution made to general unsecured creditors a Transfer of Assets: The transfer of assets by a debtor to a creditor generally produces two types of gain or loss A gain on restructuring of debt is recognized for the excess of the carrying value of the payable over the fair value of the assets transferred This gain is reported as a component of operating income In addition, a gain or loss on transfer of assets is recognized for the difference between the fair value and book value of the assets transferred This gain (loss) is reported as a component of operating income also b Grant of an Equity Interest: A debtor who grants an equity interest to a creditor will report a gain for the difference between the fair value of the equity interest issued and the carrying amount of the payable settled c Modification of Terms: In a modification of terms, the debtor will report a gain on restructuring only if the total future cash payments specified by the new terms are less than the carrying value of the payable The amount of gain is measure as the difference between the total future cash payments specified by the new terms and the carrying value of the payable The statement of affairs is an accounting report that is designed to permit interested parties to determine the total expected amounts that could be realized from the disposition of a company’s assets, the priorities in the use of the realization proceeds in satisfying claims, and the potential net deficiency that would result if the assets were realized and claims liquidated The officer is incorrect Some claims, such as for taxes, fines, and penalties are not discharged 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com The primary duties of a trustee are: a To be accountable of all property received b To examine proofs of claims and object to the allowance of any claim that is improper c To furnish such information concerning the estate and the estate’s administration as is requested by a party in interest d If the business of the debtor is authorized to be operated, file with the court and with any governmental unit charged with responsibility for collection of any tax arising out of such operation, periodic reports and summaries of the operation of the business e If the debtor has not done so, file with the court a list of creditors, a schedule of assets and liabilities, and a statement of the debtor’s financial affairs f If applicable, file a plan of reorganization, and, if the plan is accepted, file such reports as are required by the court 10 The purpose of a combining workpaper is to serve as a means by which the trustee’s accounts are united with the debtor company’s accounts in order to prepare appropriate financial statements 11 The purpose of a realization and liquidation account is to report summary realization and distribution activities of a trustee or receiver to the court It reports the changes that have occurred during a period in the monetary items because that is what the court officials are primarily interested in BUSINESS ETHICS SOLUTIONS In chapter bankruptcy liquidation, firms are assumed to be past the stage of reorganization and must sell off any un-exempt assets to pay creditors In contrast, Chapter 11 bankruptcy allows the firm the opportunity to reorganize its debt and to try to re-emerge as a healthy organization In both cases, the creditors and other claim-holders suffer losses as they will be most likely getting less return on investment than expected at the time of the initial decision to invest in the company From an ethical perspective, a chapter 11 bankruptcy provides the creditors and other claim-holders a better chance of recovering higher value for their investments than under chapter as the firm strives to recover and reorganize under chapter 11 but not under chapter The new law makes sweeping changes to American bankruptcy laws and makes it more difficult for individuals to file bankruptcy under chapter The new law requires a means test to determine whether the borrowers have enough resources to pay for their debts For additional information, see the following link: http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act] In addition the new law laid down the following requirements Mandatory credit counseling and debtor education Additional filing requirements and fees Increased attorney liability and costs Fewer automatic protections for filers Increased compliance requirements for small businesses Increased amount of debt repayment under Chapter 13 Increased length of time between discharges 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com These changes provide more safety for the creditors, who should consequently be better protected Individuals who fail the means test may opt instead for Chapter 13, which involves a repayment of their debt over time Applying this test to businesses would benefit the creditors and other claim-holders, as they would feel a slight buffer to their risk, which might stimulate new business as a result of easier fund raising It may also prevent businesses from venturing into unduly risky areas as they would not be able to bail out as easily by filing under chapter if things went wrong (hence becoming somewhat more risk averse) It would seem to shift the risk balance somewhat to the shoulders of the entrepreneur from those of the investor Filing for bankruptcy is never a desirable or ethical option, but sometimes circumstances may arise that seem to force a business or an individual into this tough situation Whether the individual finds another way at such a time or not is a personal issue and an ethical dilemma, and there is not necessarily a correct answer to this question The purpose of this discussion is to get the student to thinking about his or her personal position, and where his ethical stance would be before the situation arises Ideally, of course, the student will never find himself or herself in such a position, but, as the old saying goes, until you’ve walked a mile in another’s shoes… ANSWERS TO EXERCISES Exercise 10-1 a b a c b 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-2 False Insolvency is the inability to pay debts as they become due Classification as to current and long-term is irrelevant True True False Secured creditors are paid first from the proceeds of sale of specific assets If there are proceeds remaining, unsecured creditors with priority will be paid before other unsecured creditors True False A gain on restructuring is measured by the excess of the carrying value of the payable settled over the fair value of the assets transferred False Restructuring gains from troubled debt restructurings are reported by the debtor as a separate component of operating income False The statement of affairs is a report that shows the estimated amount to be paid to each class of claim in the event of liquidation Exercise 10-3 Part A Copyright 50,000 Gain on Transfer of Assets 50,000 To revalue the copyright to its current fair value [$95,000 – ($100,000 - $55,000)] Notes Payable Accrued Interest Payable Accumulated Amortization – Copyright Copyright ($100,000 + $50,000) Gain on Debt Restructuring 150,000 15,000 55,000 150,000 70,000 Part B The gain on transfer of assets ($50,000) should be reported as a separate component (assuming material in amount) of operating income; the gain on restructuring ($70,000) should also be reported as a separate component of operating income Part C Loss on Transfer of Assets 15,000 Copyright 15,000 To revalue the copyright to its current fair value [$30,000 – ($100,000 - $55,000)] Notes Payable Accrued Interest Payable Accumulated Amortization – Copyright Copyright ($100,000 - $15,000) Gain on Debt Restructuring ($165,000 - $30,000) 10 - 150,000 15,000 55,000 85,000 135,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-4 Part A No gain should be recognized because the total future cash payments specified by the new terms of $1,144,250 ($995,000 carrying value plus years’ interest at $49,750 per year) exceed the current carrying value of the debt, $995,000 Part B Note Payable Accrued Interest Payable Restructured Debt 900,000 95,000 995,000 Exercise 10-5 Part A A gain on restructuring should be recognized because the carrying value of the debt, $995,000, exceeds the total future cash payments specified by the new terms, $744,000 ($600,000 face value plus $144,000 interest) The gain of $251,000 should be reported as a separate component of operating income Part B Notes Payable Accrued Interest Payable Restructured Debt Gain on Debt Restructuring 900,000 95,000 744,000 251,000 Part C Restructured Debt Cash 48,000 48,000 Exercise 10-6 Realizable Value of all Assets ($190,000 + $90,000 + $102,000) Allocated to: Fully secured creditors Partially secured creditors Unsecured creditors with priority Remainder available to general unsecured creditors $382,000 (91,000) (90,000) (30,000) $171,000 Payment rate to general unsecured creditors (Including balance due to partially secured creditors) $171,000 / ($350,000 + ($120,000 - $90,000)) 45% Realizable Value of Assets: Assets pledged to fully secured creditors Assets pledged to partially secured creditors Free assets Total realizable value $190,000 90,000 102,000 $382,000 Amounts to be paid to: Fully secured creditors Partially secured creditors [$90,000 + 45($30,000)] Unsecured creditors with priority General unsecured creditors 45($350,000) Total $ 91,000 103,500 30,000 157,500 $382,000 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-7 BALL COMPANY Statement of Affairs June 30, 2009 Book Value $180,000 170,000 20,400 430,000 Assets Realizable Value Assets Pledged with Fully Secured Creditors: Inventory $110,000 Note Payable 100,000 $ 10,000 Assets Pledged with Partially Secured Creditors: Accounts Receivable 95,000 Note Payable 100,000 Free Assets Cash Property and Equipment Total Net Realizable Value Liabilities having Priority – Wages Net Free Assets 20,400 320,000 350,400 120,000 230,400 Estimated Deficiency to Unsecured Creditors $800,400 Equities Liabilities Having Priority: $120,000 Accrued Wages $120,000 Fully Secured Creditors: 100,000 Note Payable $100,000 100,000 Partially Secured Creditors: Note Payable Accounts Receivable Unsecured Creditors: 350,000 Accounts Payable 400,000 (269,600) $800,400 124,600 $355,000 Unsecured $100,000 95,000 $ 5,000 350,000 Stockholders’ Equity Common Stock Retained Earnings (deficit) $355,000 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-7 (continued) BALL COMPANY Deficiency Account June 30, 2009 Estimated Losses: Accounts Receivable Inventory Property and Equipment Estimated Gains: $ 75,000 Common Stock $ 400,000 70,000 Retained Earnings (269,600) 110,000 Estimated Deficiency to Unsecured Creditors 124,600 $255,000 $255,000 Exercise 10-8 Part A Retained Earnings Allowance for Uncollectibles ($48,700 - $40,000) Property and Equipment ($142,000 - $118,000) Goodwill To record the revaluation of assets 52,700 8,700 24,000 20,000 Common Stock - $20 par Common Stock - $4 par ($4 10,000) Reorganization Capital To record the exchange of $20 par common stock for $4 par common stock 200,000 40,000 160,000 10% Bonds Payable Reorganization Capital Common Stock (6,000 shares at $4 per share) 8% Bonds Payable To record the exchange of 8% bonds and common stock for the 10% bonds 130,000 24,000 24,000 130,000 Reorganization Capital Retained Earnings ($81,300 + $52,700) To eliminate the deficit in retained earnings 134,000 134,000 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-8 (continued) Part B CRANE COMPANY Balance Sheet December 31, 2009 Cash Accounts Receivable Less Allowance for Uncollectibles Inventory Property and Equipment ($142,000 - $24,000) Total Assets Accounts Payable 8% Bonds Payable, due 6/30/2016 Common Stock, $4 par, 16,000 shares Reorganization Capital ($160,000 – $24,000 - $134,000) Total Equities $ 33,000 $ 52,500 12,500 40,000 71,000 118,000 $262,000 $ 66,000 130,000 64,000 2,000 $262,000 Exercise 10-9 Cash Accounts Receivable (old) Inventory Property and Equipment Allowance for Uncollectibles (old) Accumulated Depreciation TRX Company – in Receivership ($939,400 – $16,000 - $211,500) To record the receipt of TRX Company assets 26,700 130,400 191,900 590,400 16,000 211,500 711,900 Cash Accounts Receivable (new) Sales To record cash sales and sales on account 31,500 264,500 296,000 Cash 319,000 76,800 242,200 Accounts Receivable (old) Accounts Receivable (new) Purchases Accounts Payable (new) To record purchases on account 127,500 127,500 TRX Company – in Receivership Accounts Payable (new) Operating Expenses Trustee Expenses Cash To record cash payments 206,500 61,600 46,000 13,000 327,100 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 10-9 (continued) Bad Debt Expense Depreciation Expense Allowance for Uncollectibles (old) Allowance for Uncollectibles (new) Accumulated Depreciation To record estimated bad debts and depreciation expense 21,600 32,400 13,000 8,600 32,400 Allowance for Uncollectibles (old) Account Receivable (old) To write off uncollectible accounts 21,000 21,000 Sales Inventory ($191,900 - $149,700) Purchases Operating Expenses Trustee Expenses Bad Debt Expense Depreciation Expense Income Summary To close nominal accounts and to adjust inventory Income Summary TRX Company – in Receivership To Close income summary account 296,000 42,200 127,500 46,000 13,000 21,600 32,400 13,300 13,300 13,300 10 - 10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-2 (continued) Part B SRP COMPANY Balance Sheet January 2, 2009 Cash ($32,200 - $11,900 - $11,820) Inventories Plant and Equipment Less Accumulated Depreciation Land Patents ($92,000 - $8,000 - $50,000) Total $ 8,480 126,600 $322,000 180,700 Restructured Debt – Due 2009 Due 2012 Common Stock, $ 10 par value, 580,000 shares outstanding Paid-in Capital in Excess of Par Retained Earnings since Reorganization on 1/2/09 Total Part C 12/31/09 Interest Expense Interest Payable ($63,000 06) 141,300 20,800 50,000 $347,180 $ 63,000 52,000 58,000 174,180 - $347,180 3,780 3,780 No interest is accrued on the debt due in 2012 because all cash payments are reductions of the carrying value of the debt 1/2/10 Interest Payable Cash 3,780 3,780 Restructured Debt Cash ($52,000 10) 5,200 5,200 10 - 14 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-3 Part A PROST COMPANY Statement of Affairs December 31, 2009 Book Value Assets Assets Pledged with Fully Secured Creditors: $140,000 Land $200,000 400,000 Plant and Equipment 205,000 $405,000 Mortgage Payable Accrued Interest 350,000 3,000 353,000 Realizable Value $ 52,000 Assets Pledged with Partially Secured Creditors: 60,000 Notes Receivable * 57,500 76,000 Accounts Receivable 55,000 112,500 Notes Payable 2,500 4,000 43,000 60,000 51,000 12,000 10,000 225,000 Free Assets Cash Prepaid Expenses Inventories: Finished Goods (1) Work in Process (2) Raw Materials Investment in Stock Goodwill Total Net Realizable Value Liabilities having Priority – Accrued Wages Net Free Assets Estimated Deficiency to Unsecured Creditors $858,500 * $60,000 - $2,500 = $57,500 10 - 15 2,500 4,000 47,515 84,150 18,000 19,000 - 227,165 45,000 182,165 150,335 $332,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-3 (continued) Book Value $ 45,000 350,000 225,000 220,000 380,000 (361,500) $858,500 Equities Liabilities Having Priority: Accrued Wages Unsecured $ 45,000 Fully Secured Creditors: Mortgage Payable Accrued Interest Partially Secured Creditors: Bank Notes Payable Notes Receivable Accounts Receivable 350,000 3,000 $353,000 225,000 $57,500 55,000 112,500 Unsecured Creditors: Accounts Payable $112,500 220,000 Stockholders’ Equity Capital Stock Retained Earnings $332,500 (1) $43,000 1.3 = $55,900 85 = $47,515 (2) ($60,000 + $30,000) 1.10 = $99,000 85 = $84,150 Deficiency Account December 31, 2009 Estimated Losses: Notes Receivable Accounts Receivable Inventory * Property and Equipment Goodwill Unrecorded Accrued Interest Estimated Gains: $ 2,500 Land 21,000 Investment in Stock 4,335 Common Stock 195,000 Retained Earnings 10,000 Estimated Deficiency 3,000 to Unsecured Creditors $235,835 * ($47,515 + $84,150 + $18,000) – ($43,000 + $60,000 + $51,000) Part B Estimated dividend to be paid general unsecured creditors: Net free assets minus cash payment to complete work in process inventory Total amount owed unsecured creditors ($182,165 - $11,000)/$332,500 = 51.6% 10 - 16 $ 60,000 7,000 380,000 (361,500) 150,335 $235,835 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-4 BRAN COMPANY Jim Brown, Trustee Reconciliation and Liquidation Account June 30, 2009 to December 31, 2009 Assets to be Realized Receivables (old) Less: Allowance for Uncollectibles Inventory Plant and Equipment Less: Accumulated Depreciation $ 45,000 6,000 215,000 70,000 Assets Acquired Receivables (new) Supplementary Charges Purchases Operating Expenses Trustee Expenses Loss on Sale of Equipment Liabilities Liquidated Accounts Payable (old) Accounts Payable (new) Liabilities Not Liquidated Accounts Payable (old) Accounts Payable (new) Net Gain (1) Assets Realized Receivables (old) $ 39,000 Receivables (new) 104,000 Plant and Equipment 145,000 Assets Not Realized Receivables (new) Less: Allowance for Uncollectibles Inventory 100,000 Plant and Equipment * Less: Accumulated Depreciation 35,000 Supplementary Credits 47,000 Sales 2,000 Gain on Sale of Land 12,000 Liabilities to be Liquidated Accounts Payable (old) 110,000 30,000 Liabilities Incurred Accounts Payable (new) 35,000 5,000 3,000 $667,000 * ($215,000 - $14,000 - $50,000) = $151,000 10 - 17 $ 38,000 85,000 39,000 $ 15,000 2,000 151,000 55,000 13,000 75,000 96,000 130,000 11,000 145,000 35,000 $667,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-4 (continued) Balance June 30 Sales Accounts Receivable (old) Accounts Receivable (new) Sale of Land and Equipment Balance 12/31 (1) Cash 15,000 Accounts Payable (old) 30,000 Accounts Payable (new) 38,000 Operating Expenses 85,000 Trustee Expenses 38,000 17,000 Proof of Gain: Sales Cost of Sales ($104,000 + $35,000 - $75,000) Operating Expenses Trustee Expenses Bad Debts Expense Depreciation Expense Gain on Sale of Land Loss on Sale of Equipment Net Gain 10 - 18 $ 130,000 (64,000) (47,000) (2,000) (3,000) (10,000) 11,000 (12,000) $ 3,000 110,000 30,000 47,000 2,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-5 Part A Trustee’s Books Cash Accounts Receivable (old) Inventory Property and Equipment Allowance for Uncollectibles (old) Accumulated Depreciation Plum Company – in Receivership ($252,750 - $3,750 - $36,825) To record the receipt of Plum Company’s assets 4,500 15,000 142,650 90,600 3,750 36,825 212,175 Cash Accounts Receivable (new) Sales To record merchandise sales 78,000 75,000 153,000 Cash 75,750 11,250 64,500 Accounts Receivable (old) Accounts Receivable (new) To record collection of accounts receivable Operating Expenses Trustee Expenses Cash To record cash expenses 11,850 3,000 14,850 Bad Debt Expense Depreciation Expense Allowance for Uncollectibles (new) Accumulated Depreciation To record adjustment for bad debts and depreciation 2,250 5,250 2,250 5,250 Allowance for Uncollectibles (old) Accounts Receivable (old) ($15,000 – $11,250) To write off uncollectible accounts 3,750 3,750 Plum Company – in Receivership Cash To record payment of old accounts payable Cash Accumulated Depreciation ($36,825 + $5,250) Loss on Sale of Equipment Property and Equipment To record the sale of property and equipment 10 - 19 143,175 143,175 43,500 42,075 5,025 90,600 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-5 (continued) Sales Plum Company – in Receivership Inventory Operating Expenses Trustee Expenses Bad Debt Expense Depreciation Expense Loss on Sale of Equipment To close income statement accounts 153,000 17,025 142,650 11,850 3,000 2,250 5,250 5,025 Plum Company Books Allowance for Uncollectibles Accumulated Depreciation P Smith, Trustee Cash Accounts Receivable Inventory Property and Equipment To record the transfer of assets to P Smith Accounts Payable P Smith, Trustee To record the payment of accounts payable by P Smith Retained Earnings P Smith, Trustee To record operating effects reported by P Smith 10 - 20 3,750 36,825 212,175 4,500 15,000 142,650 90,600 143,175 143,175 17,025 17,025 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-5 (continued) Part B PLUM COMPANY – IN RECEVERSHIP Combining Workpaper For Five Months Ending October 31, 2009 Trial Balance PLUM Trustee Company Adjustments and Eliminations Dr Cr Combined Income Balance Statement Sheet Debits Cash * Accounts Receivable (new) Inventory Operating Expenses Trustee Expense Bad Debt Expense Depreciation Expense Cost of Goods Sold Loss on Sale of Equipment P Smith, Trustee Total Debits 43,725 10,500 142,650 11,850 3,000 2,250 5,250 43,725 10,500 (1) (1) 142,650 11,850 3,000 2,250 5,250 142,650 5,025 142,650 5,025 69,000 $ 224,250 $ 69,000 (2) 69,000 $ 170,025 $ 54,225 Credits Allowance for Uncollectibles: (New) Capital Stock Retained Earnings (Deficit) Sales Plum Company-in Receivership Total Credits Net Loss 2,250 2,250 135,000 (66,000) 135,000 (66,000) 153,000 (2) 69,000 69,000 $ 224,250 $ 69,000 $211,650 * $4,500 + $78,000 + $75,750 - $14,850 - $143,175 + $43,500 (1) To adjust inventory and set up cost of goods sold (2) To eliminate reciprocal accounts 10 - 22 153,000 $211,650 153,000 17,025 $ 170,025 (17,025) $ 54,225 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-6 PLUM COMPANY P Smith, Trustee Realization and Liquidation Account June 1, 2009 to October 31, 2009 Assets to be Realized Accounts Receivable (old) Less: Allowance for Uncollectibles Inventory Plant and Equipment Less: Accumulated Depreciation $15,000 3,750 90,600 36,825 Assets Acquired Accounts Receivable (new) Supplementary Charges Operating Expenses Trustee Expense Loss on Sale of Equipment * Assets Realized Accounts Receivable (old) $ 11,250 Accounts Receivable (new) 142,650 Property and Equipment Less: Accumulated Depreciation 53,775 Assets Not Realized Accounts Receivable (new) Less: Allowance for Uncollectibles 75,000 Supplementary Credits 11,850 Sales 3,000 5,025 Liabilities to be Liquidated Accounts Payable Liabilities Liquidated Accounts Payable 143,175 Net Loss $ 445,725 Cash 4,500 Operating Expenses 78,000 Trustee Expense 75,750 Accounts Payable 43,500 43,725 10 - 23 $90,600 42,075 48,525 10,500 2,250 8,250 153,000 143,175 17,025 $ 445,725 * ($90,600 - $42,075) - $43,500 = $5,025 Opening Amount Sales Accounts Receivable Sale of Land and Equipment Balance 10/31 $ 11,250 64,500 11,850 3,000 143,175 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-7 MINER COMPANY Statement of Affairs May 31, 2009 Book Value Assets Assets Pledged with Fully Secured Creditors: $ 50,000 Notes Receivable $39,800 1,200 Accrued Interest Rec 1,000 $ 40,800 119,000 13,200 6,000 61,000 60,000 1,100 8,500 Notes Payable Accrued Interest Pay 40,000 800 Building Note Payable Accrued Interest Pay 20,000 800 Realizable Value 40,800 75,000 20,800 $ 54,200 Assets Pledged with Partially Secured Creditors: Equipment 4,200 Note Payable 10,000 Free Assets Cash Accounts Receivable Inventory Prepaid Insurance Goodwill Total Net Realizable Value Liabilities having Priority – Wages Taxes Net Free Assets 6,000 50,000 30,000 400 - 140,600 6,000 2,400 Estimated Deficiency to Unsecured Creditors $ 320,000 10 - 24 8,400 132,200 53,600 $ 185,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-7 (continued) Book Value Equities Liabilities Having Priority: $ 6,000 Accrued Wages 2,400 Taxes Payable 60,000 1,600 Fully Secured Creditors: Notes Payable Accrued Interest Payable Partially Secured Creditors: 10,000 Note Payable Equipment Unsecured $ 6,000 2,400 $ 8,400 60,000 1,600 61,600 10,000 4,200 Unsecured Creditors: 170,000 Accounts Payable 10,000 Notes Payable 110,000 ( 50,000) $ 320,000 Estimated Losses: Accounts Receivable Notes Receivable Inventory Buildings Equipment Prepaid Insurance Goodwill $ 5,800 170,000 10,000 Stockholders’ Equity Common Stock Retained Earnings (Deficit) $ 185,800 Deficiency Account May 31, 2009 Estimated Gains: $ 11,000 Common Stock 10,400 Retained Earnings 30,000 Estimated Deficiency to 44,000 Unsecured Creditors 9,000 700 8,500 $113,600 $ 110,000 (50,000) 53,600 $ 113,600 Estimated final dividend rate to unsecured creditors is: $132,200/$185,800 = 71.15% 10 - 25 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-8 Part A DAVIS MANUFACTURING COMPANY Statement of Affairs March 31, 2009 Book Value Assets Assets Pledged with Fully Secured Creditors: $ 115,500 Accounts Receivable * $ 88,500 Notes Payable 10,000 66,250 Investment in Stock 100,000 Note Payable $41,000 Accrued Interest Pay 1,750 42,750 Realizable Value $ 78,500 57,250 Assets Pledged with Partially Secured Creditors: 50,000 Note Receivable 35,000 Note Payable 45,000 Accrued Interest Payable 1,000 46,000 105,000 495,000 22,500 10,000 1,375 140,000 97,500 60,000 7,750 3,000 232,500 Land Buildings Mortgage Note Payable Accrued Interest Pay 165,000 260,000 440,000 21,250 425,000 461,250 Free Assets Cash Note Receivable Accrued Interest on Notes Receivable Finished Goods Inventory (1) Work-in-Process Inventory (2) Raw Materials Inventory (3) Supplies Inventory Prepaid Expenses Equipment Total Net Realizable Value Liabilities having Priority – Wages $ 33,750 Taxes 5,250 Net Free Assets Estimated Deficiency to Unsecured Creditors $ 1,406,375 * ($75,000 + ($40,500/3)) = $88,500 10 - 26 22,000 10,000 1,375 151,200 130,000 10,000 1,300 - 100,000 561,625 39,000 522,625 212,125 $ 734,750 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-8 (continued) Book Value $ 33,750 5,250 Equities Liabilities Having Priority: Wages Payable Payroll Taxes Payable Unsecured $ 33,750 5,250 51,000 1,750 Fully Secured Creditors: Notes Payable Accrued Interest Payable 51,000 1,750 45,000 1,000 Partially Secured Creditors: Note Payable Accrued Interest Payable 45,000 1,000 46,000 35,000 11,000 440,000 21,250 461,250 425,000 36,250 Notes Receivable 440,000 21,250 Mortgage Note Payable Accrued Interest Payable Land and Buildings 587,500 100,000 469,000 (349,125) $1,406,375 (1) $140,000 Unsecured Creditors: Accounts Payable Notes Payable 587,500 100,000 Stockholders’ Equity Common stock Retained Earnings (Deficit) $ 734,750 1.20 = $168,000 - $16,800 = $151,200 (2) Estimated Selling Price Less: Estimated Completion Costs Other than Raw Materials Realizable Value (3) $60,000 - $40,000 = $20,000 $145,000 15,000 $130,000 50 = $10,000 10 - 27 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem 10-8 (continued) Part B Estimated Losses: Cash Accounts Receivable Notes Receivable Inventory * Buildings Prepaid Expenses Equipment Deficiency Account May 31, 2009 Estimated Gains: $ 500 Land 27,000 Investment in Stock 15,000 Common Stock 12,750 Retained Earnings 235,000 Estimated Deficiency to 3,000 Unsecured Creditors 132,500 $425,750 60,000 33,750 469,000 (349,125) 212,125 $ 425,750 * ($140,000 + $97,500 + $60,000 + $7,750) – ($151,200 + $130,000 + $10,000 + $1,300) Part C Estimated dividend rate per dollar of general unsecured liabilities: $522,625/$734,750 = 71.1% 10 - 28 ... 143,175 17,025 17,025 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com... specified by the new terms and the carrying value of the payable The statement of affairs is an accounting report that is designed to permit interested parties to determine the total expected... such as for taxes, fines, and penalties are not discharged 10 - To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com The primary duties of a trustee