Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Textbook Question
Chapter 13, Problem 45P
The following
| LIMESTONE COMPANY Balance Sheet June 3, 2017 Assets |
|
| Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 3,000 |
| 65,000 | |
| Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 88,000 |
| Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 100,000 |
| Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 300,000 |
| Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 180,000 |
| Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $736,000 |
| Liabilities and Equities | |
| Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 98,000 |
| Notes payable—current | |
| (secured by equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 250,000 |
| Notes payable—long term | |
| (secured by land and buildings) . . . . . . . . . . . . . . . . . . . . . . . . . . . | 190,000 |
| Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 120,000 |
| 78,000 | |
| Total liabilities and equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $736,000 |
Additional Information
- If the company is liquidated, administrative expenses are estimated at $18,000.
- The accounts payable figure includes $10,000 in wages earned by the company’s 12 employees during May. No one earned more than $2,200.
- Liabilities do not include taxes of $14,000 owed to the U.S. government.
- Company officials estimate that 40 percent of the accounts receivable will be collected in a liquidation and that the inventory disposal will bring $80,000. The land and buildings will be sold together for approximately $310,000; the equipment should bring $130,000 at auction.
Prepare a statement of financial affairs for Limestone Company as of June 3, 2017.
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Ataway Company has severe financial difficulties and is considering filing a bankruptcy petition. At this time, it has the following assets and liabilities. The assets are stated at net realizable value.
Assets (pledged against debts of $70,000) . . . . . . . . . . . . . . . . $116,000Assets (pledged against debts of $130,000) . . . . . . . . . . . . . . . . . 50,000Other assets . . . . . . . . . . . . . . . 80,000Liabilities with priority . . . . . . . 42,000Other unsecured creditors . . . 200,000
In a liquidation, how much money would be paid on the partially secured debt?
The Sunshine Company has the following data in connection with its bankruptcy petition with the Securities and Exchange Commission at the end of 2018.
Unsecured creditorsP287.500.
Liabilities with priority137,500
Secured Liabilities
Debt 1, P262,500; value of pledged asset 225,000
Debt 2, P212,500, value of pledged asset 125,000
Debt 3, P150,000, value of pledged asset 175,000'
The company also has a number of other assets that are not pledge in any way, The creditors holding Debt 2 want to receive at least P177,50
Required: For how much do these free assets have to be sold so that Debt 2 would receive exactly P177,500.
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Assume that the business has received notification on 15 April 2020 that a debtor owing $1,850 has declared bankruptcy. On 22 August 2020 the debtor unexpectedly remits full payment for the previously written-off account. Prepare the general journal entry to re-establish this debt and record payment under each of the following methods:
(i) The direct write-off method
(ii) The allowance method
Chapter 13 Solutions
Advanced Accounting
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