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Problem: I - Statement of Affairs and Deficiency Account

Miner Company is facing bankruptcy and creditors have requested an estimate of the liquidation value. The company's trial balance is provided. Assets are expected to generate $50,000 from accounts receivable, $40,800 from notes receivable, $30,000 from inventory, $75,000 from buildings, and $4,200 from equipment upon liquidation. Notes receivable of $40,000 and equipment are pledged against notes payable of the same amounts. Buildings are pledged against a $20,000 note and half the accrued interest relates to each of these notes.

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Ann Marie Gabay
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2K views1 page

Problem: I - Statement of Affairs and Deficiency Account

Miner Company is facing bankruptcy and creditors have requested an estimate of the liquidation value. The company's trial balance is provided. Assets are expected to generate $50,000 from accounts receivable, $40,800 from notes receivable, $30,000 from inventory, $75,000 from buildings, and $4,200 from equipment upon liquidation. Notes receivable of $40,000 and equipment are pledged against notes payable of the same amounts. Buildings are pledged against a $20,000 note and half the accrued interest relates to each of these notes.

Uploaded by

Ann Marie Gabay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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_PROBLEM

I - 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:
Accounts Debit Credit
Cash…………………………………………………………….. P 6,000
Accounts receivable………………………………………… 63,000
Allowance for bad debts…………………………………… P 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 _________
Totals…………………………………………………………….. P 436,400 P 436,400

The assets are expected to bring cash on conversion in the following amounts:

Accounts Receivable……………………………………………………………. P 50,000


Notes receivable including P1,000 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 P40,000. A note payable of P20,000 is secured by
a lien on the building, and the equipment is pledged as security on a note payable of P10,000. One-half of the
interest payable relates to the P40,000 note payable; the other half of the interest payable relates to the P20,000 note
payable. There is no accrued interest on the other notes payable.

Required:
1. Prepare a statement of affairs as of May 31, 20x4. Include a deficiency account, and
2. Determine the estimated dividend rate to the general unsecured creditors.

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