Advanced Financial Accounting
11th Edition
ISBN: 9780078025877
Author: Theodore E. Christensen, David M Cottrell, Cassy JH Budd Advanced Financial Accounting
Publisher: McGraw-Hill Education
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Question
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
(a)
Expert Solution
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 | 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) | |||||
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.
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