Chapter 20, Problem 20.7P

(a)

To determine

Introduction: The statement of affairs is an important document or disclosure at the time of insolvency proceedings. It represents an overview of the amount of assets and liabilities of the company.

The statement of affairs for the year ended July 31, 20X1

Answer to Problem 20.7P

Statement of Activities for the year ended July 31, 20X1

Book value (in $)	S.No	Particulars	Estimated current values	Estimated amount available to unsecured claims	Estimated gain (loss) on realization
	1	Assets pledged with fully secured creditors:
50,000		Accounts receivable (net)	50,000
		Less: 12% note payable and interest	(44,000)	6,000
8,000		Land	110,000		30,000
162,000		Plant and Equipment (net)	150,000		(12,000)
			260,000
		Less: mortgages payable and interest	(234,600)	25,400
	2	Assets pledged with partially secured creditors:
30,000		Marketable securities:	22,000		(8,000)
		Less: 10% note payable and interest	29,400
79,000		Inventory	75,000		(4,000)
		Less: accounts payable	(105,000)
	3	Free assets:
5,000		Cash	5,000	5,000
55,000		Accounts receivables	51,000	55,000
81,000		inventory	76,000	76,000	(5,000)
7,000		Prepaid insurance	1,500	1,500	(5,500)
250,000		Plant and equipment (net)	190,000	190,000	(60,000)
72,000		Franchises	30,000	30,000	(42,000)
		Estimated amount available		388,900
		Less: creditors with priority		(45,000)
		Net amount available to unsecured creditors		343,900
		Add: estimated deficiency		82,500
871,000					(106,500)
		Total unsecured debt		426,400

Book value (in $)	S.No	Particulars	Estimated current values	Estimated amount available to unsecured claims	Estimated gain (loss) on realization
	1	Fully secured creditors:
44,000		12% note payable and interest		44,000
234,600		Mortgages payable		234,600
				278,600
8,000	2	Partially secured creditors:
162,000		10% note payable and interest		29,400
		Less: marketable securities:		22,000	7,400
105,000		Accounts payable		105,000
		Less: inventory		(75,000)	30,000
	3	Creditors with priority:
		Estimated liquidation expenses		13,000
20,000		Wages payable		20,000
12,000		Taxes payable		12,000
		Total		45,000
	4	Unsecured creditors:
160,000		Accounts payable			160,000
212,000		Notes payable			212,000
17,000		Interest payable			17,000
	5	Stakeholders equity
240,000		Common stock
(203,000)		Retained earnings
					426,400

Explanation of Solution

The amount of creditors with priority is determined in the equity section of the statement. The estimated amount available to unsecured claims is determined by adding all the amount of free assets, interest on notes payable, and interest on mortgage payable.