(a) A company entering liquidation has reported assets with a book value of $200,000 and a liquidation...
Question:
(a) A company entering liquidation has reported assets with a book value of $200,000 and a liquidation value of $120,000, and previously unreported software that it estimates it can sell for $25,000. It has reported liabilities with a book value of $180,000, and believes it is probable that it can negotiate the payments down by 25%. The company's net assets, reported on its statement of net assets in liquidation, are
A. $(35,000)
B. $20,000
C. $(15,000)
D. $(60,000)
(b) Inho Corporation has fully secured liabilities of $300,000 and unsecured liabilities of $1,500,000, of which $250,000 have legal priority. Inho's assets are expected to realize $1,000,000; of these, $420,000 is pledged to the fully-secured creditors.
Inho's net free assets amount to
A. $1,000,000.
B. $ 700,000.
C. $ 580,000.
D. $ 450,000.
(c) The estimated deficiency to Inho's unsecured creditors is
A. $800,000.
B. $700,000.
C. $500,000.
D. $450,000.
(d) Borden Corporation is undergoing a Chapter 7 liquidation. Currently, it has cash of $130,000, inventory of $650,000, and equipment of $775,000. It owes an unsecured bank loan payable of $500,000 and unsecured accounts payable of $1,600,000. During the current month, the Receiver sells Borden's entire inventory to a liquidator for $290,000. The entire cash balance is then distributed to unsecured creditors.
Borden's statement of realization and liquidation shows
A. Gain on liquidation of $1,680,000.
B. Assets not realized of $360,000 for inventory and $775,000 for equipment.
C. Assets to be realized of $1,555,000 (cash, inventory, and equipment).
D. Loss on realization of $360,000.
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany