On October 1, 2020, Drexel Inc. begins liquidation activities and adopts the liquidation basis of accounting. The book value of its assets total $500,000, including $5,000 in cash, and the book value of its liabilities total $490,000. Expected proceeds from reported assets other than cash are:
• Receivables, $50,000
• Inventory, $120,000
• Plant and equipment, $200,000
Expected costs of liquidating assets are $20,000.
Required
a. Calculate the cumulative effect of the adjustment to Drexel's net assets due to adoption of the liquidation basis of accounting.
b. Prepare a statement of net assets in liquidation as of October 1, 2020.

Question

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The Answer of On October 1, 2020, Drexel Inc. begins liquidation activities and adopts the liquidation basis of accounting. The book value of its assets total $500,000, including $5,000 in cash, and the book value of its liabilities total $490,000. Expected proceeds from reported assets other than cash are:
• Receivables, $50,000
• Inventory, $120,000
• Plant and equipment, $200,000
Expected costs of liquidating assets are $20,000.
Required
a. Calculate the cumulative effect of the adjustment to Drexel's net assets due to adoption of the liquidation basis of accounting.
b. Prepare a statement of net assets in liquidation as of October 1, 2020.