Assignment P18-6 [PDF]

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ASSIGNMENT Nur Faizah Fauziah A31115018 E 18-6 (Financial reporting during bankruptcy) The balance sheet of Everlast Window Corporation at June 30, 2011, contains the following items:



The company is in financial difficulty, and its stockholders and creditors have requested a statement of affairs for planning purposes. The following information is available: 1. The company estimates that $63,000 is the maximum amount collectible for the accounts receivable. 2. Except for 20% of the inventory items that are damaged and worth only $2,000, the cost of the other items is expected to be recovered in full. 3. The land and building have a combined appraisal value of $170,000 and are subject to the $150,000 mortgage and related accrued interest. 4. The appraised value of the machinery is $20,000. 5. Wages payable and property taxes payable are unsecured priority items that do not exceed any limitations of the bankruptcy act. REQUIRED 1. Prepare a statement of affairs for Everlast Window Corporation as of June 30, 2011. 2. Compute the estimated settlement per dollar of unsecured liabilities.



1. Everlast Window Corporation Statement of Affairs on June 30, 2011 Asset: RV Liability Offsets for Secured Creditors



Book Value



$230,000



40,000 70,000 50,000 60,000 50,000



Pledged for fully secured creditors Land and building Less: Mortgage payable and accrued interest Available for priority and unsecured creditors Cash Accounts receivable — net Inventories Machinery — net Goodwill Total available for priority and unsecured Creditors Less: Priority liabilities Total available for unsecured creditors Estimated deficiency



$170,000 (165,000)



Secured and Priority Claims



$ 60,000 10,000



Priority liabilities Wages payable Property taxes payable



150,000 15,000



Fully secured creditors Mortgage payable Interest on mortgage payable



110,000 50,000 5,000 200,000 (100,000) $500,000



Unsecured creditors Accounts payable Note payable — unsecured Interest payable — unsecured 5,000 Stockholders’ equity Capital stock Retained earnings (deficit)



$ 5,000 40,000 63,000 42,000 20,000 170,000 70,000 100,000 65,000 $165,000



$500,000 Liabilities and Stockholders’ Equity Book Value



RV Available for unsecured Creditors



Unsecured Nonpriority Claims



$ 60,000 10,000 70,000 $150,000 15,000 165,000 $110,000 50,000 5,000



$165,000



2. Settlement per dollar of rank 1 unsecured creditors is $.6250 ($100,000 available for unsecured/$160,000 accounts and notes payable). No payment is made for the $5,000 unsecured interest claim.