Deck 13: Accounting for Legal Reorganizations and Liquidations

Question 1

Which of the following is not one of the more common reorganization plan elements?

A) plans for plant expansion.
B) plans for generating additional monetary resources.
C) plans to settle the debts of the company that existed when the order for relief was entered.
D) plans proposing changes in the company's operations.
E) plans for changes in the management of the company.

Answer 1

A

Question 2

Which one of the following unsecured liabilities has the highest priority when an insolvent company is about to be liquidated?

A) federal income taxes payable.
B) claims for expenses of administering the bankruptcy.
C) loans made to the company by its stockholders.
D) employees' claims for salaries.
E) bank loans.

Answer 2

B

Question 3

Lawyer's fees incurred during a reorganization are accounted for as:

A) an expense.
B) an intangible asset, Reorganization Cost, which would normally be amortized over a five-year period.
C) additional paid-in capital.
D) retained earnings.
E) a prepaid asset until the entity emerges from reorganization.

Answer 3

A

Question 4

Sparkman Co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman was paying forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of $150,000 on land that was sold for $110,000. The total amount of payment that Bailey should have received is calculated to be

A) $110,000.
B) $44,000.
C) $126,000.
D) $150,000.
E) $60,000.

Question 5

What is normally required before a reorganization plan can be implemented?

A) The plan must be presented by the company and confirmed by the court.
B) The plan must be approved by each class of creditors and each class of stockholders, and confirmed by the court.
C) The plan must be presented by the company, approved by two-thirds of each class of stockholders, and confirmed by the court.
D) The plan must be presented by the company, approved by three-fourths of each class of stockholders, and confirmed by the court.
E) The plan must be approved by two-thirds of each class of creditors, approved by two-thirds of each class of stockholders, and confirmed by the court.

Question 6

How should liabilities (except for deferred income taxes) be reported by a company using fresh start accounting?

A) at the undiscounted sum of future cash payments.
B) at book value prior to the reorganization.
C) as partially secured liabilities.
D) at the present value of future cash payments.
E) as unsecured liabilities.

Question 7

On a statement of financial affairs, a company's assets should be valued at

A) historical cost.
B) net realizable value, if lower than historical cost.
C) replacement cost.
D) net realizable value, if higher than historical cost.
E) net realizable value, whether higher or lower than historical cost.

Question 8

On its balance sheet, a company undergoing reorganization should

A) report its assets at fair value, so that financial statement users can estimate whether creditors' claims will be met.
B) report its assets at net realizable value because there is reason to doubt that the organization is a going concern.
C) report its assets as pledged or free.
D) report its assets at current replacement cost.
E) continue to report its assets at book value.

Question 9

What are free assets?

A) assets for which net realizable value is greater than historical cost.
B) assets for which no market exists.
C) assets for which replacement cost is greater than historical cost.
D) assets available to be distributed for liabilities with priority and for other unsecured obligations.
E) assets available to be distributed to stockholders.

Question 10

A Chapter 7 bankruptcy is a(n)

A) involuntary reorganization.
B) bankruptcy forced by a company's creditors.
C) liquidation.
D) bankruptcy in which all creditors receive payment in full.
E) voluntary reorganization.

Question 11

Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities: The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000.
How much should Quincy expect to pay on the accounts payable?

A) $240,000.
B) $128,000.
C) $120,000.
D) $96,000.
E) $146,000.

Question 12

In a statement of financial affairs, assets are classified

A) according to whether they are pledged with particular creditors.
B) as current or noncurrent.
C) as monetary or nonmonetary.
D) as operating or non-operating.
E) as direct or indirect.

Question 13

During a reorganization, how should interest expense be reported on the financial statements?

A) on the income statement, but not classified as a reorganization item.
B) on the income statement as a separate reorganization item.
C) on the balance sheet as a prepaid expense.
D) as a debit directly to retained earnings.
E) on the balance sheet as an intangible asset.

Question 14

The statement of financial affairs should be prepared

A) under the going concern assumption.
B) under the concept of conservatism.
C) under the assumption that liquidation will occur.
D) under the continuity concept.
E) only for a company in Chapter 7 bankruptcy.

Question 15

On a statement of financial affairs, a specific liability may be classified as

A) current or long-term.
B) secured or unsecured.
C) monetary or nonmonetary.
D) direct or indirect.
E) past due or not yet due.

Question 16

During a reorganization, cash reserves tend to grow. How should interest earned on these reserves be reported on the financial statements?

A) as an unearned revenue until the reorganization is complete.
B) as a credit directly to retained earnings.
C) on the balance sheet as a long-term liability.
D) on the income statement, but not classified as a reorganization item.
E) on the income statement as a reorganization item.

Question 17

How should the fresh start reorganization value normally be determined?

A) as the sum of current replacement cost of the company's assets.
B) by discounting future cash flows for the entity that will emerge.
C) as the sum of the historical cost of net assets.
D) as the sum of the net realizable value of identifiable assets.
E) by adjusting current cash flows for the entity as it emerges from reorganization.

Question 18

Which one of the following is a requirement that must be met before an involuntary bankruptcy petition can be filed when there are at least 12 unsecured creditors?

A) The petition must be filed by all creditor(s) to whom the debtor owes at least $15,325.
B) The petition must be signed by creditor(s) with unsecured debts of at least $5,000.
C) The petition must be signed by a majority of the creditor(s).
D) The petition must be signed by creditor(s) to whom the debtor owes more than half of its debts.
E) The petition must be signed by at least three creditors with unsecured debts of at least $15,325.

Question 19

Where should a company undergoing reorganization report the gains and losses resulting from the reorganization?

A) on the statement of retained earnings.
B) on the income statement, combined with the gains and losses from operations.
C) on the statement of stockholders' equity.
D) on the income statement, separate from other gains and losses.
E) on the statement of cash flows.

Question 20

On a statement of financial affairs, a company's liabilities should be valued at

A) the present value of future cash flows.
B) net realizable value.
C) the amount required for settlement.
D) replacement cost.
E) the amount expected to be paid if the company could honor its debts.

Question 21

Which statement is false regarding a plan for reorganization?

A) The plan is the heart of every Chapter 7 bankruptcy.
B) The provisions of the plan specify the treatment of all creditors and equity holders upon approval by the Court.
C) The plan shapes the financial structure of the entity that emerges.
D) The plan may contain numerous provisions as solutions to financial difficulties.
E) The plan may contain provisions for changes in the management of the company.

Question 22

For each of the following situations, select the best answer concerning the classification of the liability.
(A.) Unsecured without priority
(B.) Unsecured with priority
(C.) Partially secured
(D.) Fully secured
___ 1. Payroll taxes payable.
___ 2. Land and building valued at $427,000 mortgaged by a bank loan in the amount of $517,000.
___ 3. Equipment valued at $73,000 securing a loan to an individual in the amount of $32,100.
___ 4. Salaries payable to employees in the following amounts: $1,250; $1,876; $4,500.
___ 5. Electric bill owed to a local utility.
___ 6. Unpaid defined contribution pension plan payments in the amount of $4,000 (none in excess of $375 per employee).
___ 7. Obligations arising from the purchase of materials on July 5, 2013. (Bankruptcy petition filed July 14, 2013).
___ 8. Fees charged by bankruptcy trustee.
___ 9. Inventory valued at $61,895 collateralizing a note payable to a bank in the amount of $56,982.
___ 10. Delivery trucks valued at $389,900 securing a lien by General Motors for $400,000.

Question 23

All of the following items are liabilities with priority except:

A) Obligations arising between the date an order of relief is issued and the date of final realization of assets.
B) Employee claims for contributions to benefit plans earned more than 180 days preceding the filing of a petition, limited to $12,475 per individual.
C) Government claims for unpaid taxes.
D) Claims for the return of deposits made by customers to acquire property or services, which were never delivered or provided by the debtor, limited to $2,775.
E) Claims for administrative expenses in preserving and liquidating the company.

Question 24

A company that was to be liquidated had the following liabilities: Assets available for unsecured creditors after payments of liabilities with priority are calculated to be what amount?

A) $226,000.
B) $247,050.
C) $251,000.
D) $251,275.
E) $275,000.

Question 25

Which of the following is not a responsibility of the bankruptcy trustee?

A) Recover all property belonging to the insolvent company.
B) Liquidate common stock of the company.
C) Preserve the estate from any further deterioration.
D) Make distributions to the proper claimants.
E) Void preferences made by the debtor within 90 days prior to the filing of the bankruptcy petition if the company was already insolvent.

Question 26

Assuming all of the following expenses have priority, in what order are they prioritized?

A) Administrative expenses, employee claims for wages, unpaid taxes, claims for the return of customer deposits.
B) Employee claims for wages, unpaid taxes, administrative expenses, claims for the return of customer deposits.
C) Unpaid taxes, administrative expenses, employee claims for wages, return of customer deposits.
D) Administrative expenses, employee claims for wages, claims for the return of customer deposits, unpaid taxes.
E) Unpaid taxes, return of customer deposits, employee claims for wages, administrative expenses.

Question 27

Gongman Corp. owned the following assets when it came out of a Chapter 11 bankruptcy: Gongman Corp. had a fresh start reorganization value of $1,000,000. What amount of goodwill should have been recognized in recording the reorganization?

A) $20,000.
B) $100,000.
C) $60,000.
D) $210,000.
E) $98,000.

Question 28

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000.
On a statement of financial affairs, what amount would have been shown as assets available to pay liabilities with priority and unsecured creditors?

A) $390,000.
B) $445,000.
C) $495,000.
D) $660,000.
E) $795,000.

Question 29

What is meant by a "partially secured liability"?

Question 30

What information is conveyed by the Statement of Realization and Liquidation?

A) Account balances reported by the company at the date of the filing of the bankruptcy petition.
B) Cash receipts generated by the sale of the debtor's property.
C) Write up of assets.
D) Recognition of recorded liabilities.
E) Assets and liabilities but not stockholders' equity.

Question 31

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000.
What amount would the company have expected to pay for every dollar of unsecured liability without priority?

A) $.30.
B) $.40.
C) $.50.
D) $.60.
E) $.75.

Question 32

How are assets and liabilities valued on a Statement of Financial Affairs?

A) Option A
B) Option B
C) Option C
D) Option D
E) Option E

Question 33

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000.
What was the total amount of unsecured liabilities with priority?

A) $130,000.
B) $155,000.
C) $167,475.
D) $170,000.
E) $200,000.

Question 34

A company that was to be liquidated had the following liabilities: Total unsecured non-priority liabilities are calculated to be what amount?

A) $44,000.
B) $51,050.
C) $75,000.
D) $85,000.
E) $194,000.

Question 35

A company that was to be liquidated had the following liabilities: Total assets, available to pay liabilities with priority and unsecured creditors, are calculated to be what amount?

A) $75,000.
B) $270,000.
C) $275,000.
D) $295,000.
E) $370,000.

Question 36

A company that was to be liquidated had the following liabilities: Total liabilities with priority are calculated to be what amount?

A) $19,000.
B) $37,950.
C) $43,725.
D) $44,000.
E) $144,000.

Question 37

What is meant by a "fully secured liability"?

Question 38

Which statement is false regarding the acceptance and confirmation of a reorganization plan?

A) The plan must be voted on by the creditors and the stockholders of the company.
B) A separate vote is required of each class of stockholders.
C) Any class of creditors that is not damaged by a reorganization is assumed to have accepted the plan without voting.
D) Even if creditors and stockholders approve of the plan, the court can reject the plan.
E) Acceptance of the plan requires the approval of two-thirds in number of claims and one-half in dollar amount of creditors that cast votes.

Question 39

What is the difference between a liquidation and a reorganization?

Question 40

Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities: The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000.
How much should the mortgage holder expect to collect from the liquidation?

A) $474,000
B) $510,000
C) $450,000
D) $480,000
E) $478,000

Question 41

A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total assets available to pay liabilities with priority and unsecured creditors are calculated to be what amount?

Question 42

What are the three categories of assets in a Statement of Financial Affairs?

Question 43

What are duties of the creditors committee in Chapter 7 liquidation?

Question 44

What occurs in the accounting records for fresh start accounting when a bank agrees to accept less than the debtor's book value of a note payable?

Question 45

How is the presentation of an income statement during a reorganization different from a normal income statement?

Question 46

What are the four categories of debts in a Statement of Financial Affairs?

Question 47

A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total unsecured non-priority liabilities are calculated to be what amount?

Question 48

A company that was to be liquidated had the following liabilities:
The company had the following assets:
Required:
Assets available for unsecured creditors after payment of liabilities with priority are calculated to be what amount?

Question 49

What is the meaning of the phrase debtor in possession?

Question 50

To what does the term Chapter 7 bankruptcy refer?

Question 51

How is the presentation of a balance sheet during a reorganization different from a normal balance sheet?

Question 52

Who must accept and confirm the Reorganization plan?

Question 53

To what does the term Chapter 11 bankruptcy refer?

Question 54

What are some of the common elements that can be included in a reorganization proposal?

Question 55

What information is included on the statement of realization and liquidation?

Question 56

What is an order for relief?

Question 57

What term is used for a bankruptcy forced upon a debtor by its creditors?

Question 58

A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total liabilities with priority are calculated to be what amount?

Question 59

What is the role of the trustee in the liquidation of a company?

Question 60

What is the purpose of Chapter 7 of the Bankruptcy Reform Act?

Question 61

Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Total payment on the bond is calculated to be what amount?

Question 62

Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities.
In a liquidation, total assets available to pay liabilities with priority and unsecured creditors are calculated to be what amount?

Question 63

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
What is the payout percentage to unsecured creditors? (Round the percentage to a whole number and two decimal places.)

Question 64

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of total assets available to pay liabilities with priority and unsecured creditors.

Question 65

Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Assets available for unsecured creditors after payment of liabilities with priority are calculated to be what amount?

Question 66

A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total payment on notes payable is calculated to be what amount? (Round the payout percentage to one decimal place.)

Question 67

Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities.
Total payment on partially secured debt is calculated to be what amount?

Question 68

Mount Inc. was a hardware store that operated in Boise, Idaho. Management made some poor inventory acquisitions that loaded the store with unsalable merchandise. Due to the decline in revenues, the company became insolvent. Following is a trial balance as of March 15, 2013, the day the company filed for Chapter 7 liquidation.
Company officials believed that sixty percent of the accounts receivable could be collected if the company was liquidated. The building and land had a fair value of $97,500, while the equipment was worth $24,700. The investments represented shares of a publicly traded company that could be sold at the time for $27,300. The entire inventory could be sold for only $42,900. Administrative expenses necessary to carry out a liquidation would have approximated $20,800.
Required:
Prepare a statement of financial affairs for Mount Inc. as of March 15, 2013.

Question 69

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of total liabilities with priority.

Question 70

A statement of financial affairs created for an insolvent corporation that was beginning the liquidation process disclosed the following data (assets were shown at net realizable values):
Required:
How much money appears to be available for unsecured creditors after payment of liabilities with priority?

Question 71

Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Total unsecured liabilities are calculated to be what amount?

Question 72

Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities.
Total unsecured liabilities are calculated to be what amount?

Question 73

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of assets available for unsecured creditors after payment of liabilities with priority.

Question 74

Mount Inc. was a hardware store that operated in Boise, Idaho. Management made some poor inventory acquisitions that loaded the store with unsalable merchandise. Due to the decline in revenues, the company became insolvent. Following is a trial balance as of March 15, 2013, the day the company filed for Chapter 7 liquidation.
Company officials believed that sixty percent of the accounts receivable could be collected if the company was liquidated. The building and land had a fair value of $97,500, while the equipment was worth $24,700. The investments represented shares of a publicly traded company that could be sold at the time for $27,300. The entire inventory could be sold for only $42,900. Administrative expenses necessary to carry out a liquidation would have approximated $20,800.
How much cash would have been paid to an unsecured non-priority creditor who was owed a total of $1,300 by Mount Inc.? (Round the payout percentage to a whole number.)

Question 75

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
How much will Hampton's creditor of an unsecured accounts payable of $4,000 receive?

Question 76

Bazley Co. had severe financial difficulties and was considering the possibility of filing a bankruptcy petition. At that time, the company had the following assets (stated at net realizable value) and liabilities.
Assets that are available for unsecured creditors after payment of liabilities with priority are calculated to be what amount?

Question 77

Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
In a Chapter 7 bankruptcy, total assets available to pay liabilities with priority and unsecured creditors are calculated to be what amount?

Question 78

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of unsecured liabilities without priority.

Question 79

Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
• The investments are currently worth $13,000.
• It is estimated that $32,000 of the accounts receivable are collectible.
• The inventory can be sold for $74,000.
• The prepaid expenses and the intangible assets have no net realizable value.
• The land and building are currently valued at $250,000.
• The equipment can be sold for $60,000.
• Administrative expenses (not yet recorded) are estimated to be $12,500.
• Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and $3,000 each to two other employees).
• Accrued expenses include $7,000 of unpaid payroll taxes.
How much will be paid to the holder of the note payable secured by the land and building?
(Round your payout percentage to the nearest whole number.)

Question 80

Mount Inc. was a hardware store that operated in Boise, Idaho. Management made some poor inventory acquisitions that loaded the store with unsalable merchandise. Due to the decline in revenues, the company became insolvent. Following is a trial balance as of March 15, 2013, the day the company filed for Chapter 7 liquidation.
Company officials believed that sixty percent of the accounts receivable could be collected if the company was liquidated. The building and land had a fair value of $97,500, while the equipment was worth $24,700. The investments represented shares of a publicly traded company that could be sold at the time for $27,300. The entire inventory could be sold for only $42,900. Administrative expenses necessary to carry out a liquidation would have approximated $20,800.
Assume that the company was being liquidated and that the following transactions occurred:
• Accounts receivable of $23,400 were collected.
• All of the company's inventory was sold for $52,000.
• Additional accounts payable of $13,000 incurred for various expenses such as utilities and maintenance were discovered.
• The land and building were sold for $92,300.
• The note payable due to the Idaho Savings and Loan was paid.
• The equipment was sold at auction for only $14,300 with the proceeds applied to the note owed to the Second National Bank.
• The investments were sold for $27,300.
• Administrative expenses totaled $26,000 as of July 26, 2013, but no payment had yet been made.
Required:
Prepare a statement of realization and liquidation for the period from March 15 through July 26, 2013.