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Second Period
Quiz 3
Corporate Liquidation & Reorganization and Joint Arrangements

NAME: Date:
Professor: Section: Score:

QUIZ:
1. It refers to the termination of business operations whereby an entity’s assets are disposed of in
order to settle all of the claims on the entity’s assets.
a. solidification
b. aquatation
c. dissolution
d. liquidation

2. Liabilities in the statement of affairs are classified into

a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority
e. All of these

3. The estimated recovery of partially secured creditors is equal to

a. the realizable value of the assets pledged plus the excess amount multiplied by the estimated
recovery percentage.
b. the realizable value of the assets pledged minus the excess amount multiplied by the estimated
recovery percentage.
c. their claims multiplied by the estimated recovery percentage.
d. any of these

Use the following information for the next four questions:

Andrix Asterix Co. has filed for voluntary insolvency and is going to liquidate. Andrix Asterix Co.’s
statement of financial position immediately prior to the liquidation process is shown below:
Andrix Asterix Co.
Statement of financial position
As of December 31, 20x0

ASSETS
Current assets:
Cash 160,000
Accounts receivable 880,000
Note receivable 400,000
Inventory 2,120,000
Prepaid assets 40,000
3,600,000
Noncurrent assets:
Land 2,000,000
Building, net 8,000,000
Equipment, net 1,200,000
11,200,000
Total assets 14,800,000
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LIABILITIES AND EQUITY

Current liabilities:
Accrued expenses 884,000
Current tax payable 1,400,000
Accounts payable 4,000,000
6,284,000
Noncurrent liabilities:
Note payable (secured by equipment) 1,200,000
Loan payable (secured by land and building) 8,000,000
9,200,000
Capital deficiency:
Share capital 2,000,000
Retained earnings (deficit) (2,684,000)
(684,000)
Total liabilities and equity 14,800,000

Additional information:
The following information was determined before the start of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. The note receivable is fully collectible, and in addition interest of ₱40,000 is expected to be collected.
c. The inventory has an estimated selling price of ₱1,680,000 and estimated costs to sell of ₱40,000.
d. The prepaid assets are non-refundable.
e. The land and building have fair values of ₱8,000,000 and ₱3,200,000, respectively. However, Andrix
expects to sell both assets at a single price of ₱10,400,000. Costs to sell are negligible because the
prospective buyer agrees to shoulder all costs relating to the transfer of the property.
f. The equipment is expected to be sold at a net selling price of ₱800,000.
g. Administrative expenses of ₱120,000 are expected to be incurred in the liquidation.
h. The accrued expenses include accrued salaries of ₱100,000.
i. Interest of ₱60,000 is expected to be paid on the loan.
j. All the other liabilities are stated at their expected net settlement amounts.

4. How much are the total assets pledged to partially secured creditors?

5. How much are the total unsecured liabilities with priority?

6. How much are the total unsecured liabilities without priority?

7. What is the estimated recovery percentage of unsecured creditors without priority?

a. 75.85%
b. 31.71%
c. 70%
d. 24.15%

Use the following information for the next three questions:

Use Andrix Asterix Co.’s statement of financial position in the preceding problem but ignore the
additional information. Instead, use the information provided below.

Andrix Co.’s liquidation was entrusted to a receiver. The receiver identified the following before the
start of the liquidation process:
a. Liquidation costs of ₱120,000 are expected to be incurred during the winding up of Andrix Co.’s
business affairs.
b. Interest of ₱40,000 is expected to be collected on the note receivable.
c. Interest of ₱60,000 is expected to be paid on the loan payable.
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The following were the actual transactions during the period:

a. Only ₱660,000 have been collected on the accounts receivable; the remaining balance was
written-off.
b. Only 90% of the note receivable was collected; the remaining balance was written-off. The interest
was collected as expected.
c. Half of the inventory was sold for ₱1,200,000. Actual costs to sell were ₱20,000.
d. The prepaid assets were written-off.
e. The land and building were sold for ₱10,400,000.
f. The equipment was sold for ₱880,000.
g. Accrued expenses of ₱100,000 were paid. The balance remains outstanding.
h. The current tax payable was paid in full.
i. The loan payable and interest payable were paid in full.
j. The lender accepted ₱880,000 as full payment of the note payable.
k. Administrative expenses relating to the liquidation amounted to ₱108,000.

8. The statement of realization and liquidation will show total “assets to be realized” of

9. The statement of realization and liquidation will show total “liabilities to be liquidated” of

10. The statement of realization and liquidation will show net gain (loss) for the period of

11. The estimated recovery of unsecured creditors without priority is equal

a. to the realizable value of the assets pledged plus the excess amount multiplied by the estimated
recovery percentage.
b. to the realizable value of the assets pledged minus the excess amount multiplied by the
estimated recovery percentage.
c. to their claims multiplied by the estimated recovery percentage.
d. any of these

12. If the total debits in the statement of realization and liquidation exceeds the total credits, there is
a. net gain for the period
b. net loss for the period
c. either a or b
d. none of these

13. “Assets to be realized” is placed on which side of a statement of realization and liquidation?
a. debit side, measured at realizable value
b. credit side, measured at book value
c. debit side, measured at book value
d. no side

14. “Assets realized” is placed on which side of a statement of realization and liquidation?
a. credit side, measured at realizable value
b. credit side, measured at actual net proceeds from sale
c. debit side, measured at book value
d. no side

15. “Liabilities not liquidated” is placed on which side of a statement of realization and liquidation?
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a. debit side, measured at realizable value

b. credit side, measured at book value
c. debit side, measured at book value ‘
d. no side

16. “Liabilities liquidated” is placed on which side of a statement of realization and liquidation?
a. credit side, measured at realizable value
b. credit side, measured at actual settlement amount
c. debit side, measured at book value
d. debit side, measured at actual settlement amount

Use the following information for the next two questions:

A, B and C formed a joint operation. They agreed on the following:
● C is appointed as the manager. As compensation, C is entitled to a ₱120 salary plus bonus of 25% of
profit after deducting the salary and the bonus. However, C will be charged for the cost of any
unsold inventory.
● Interest of 10% per annum is allowed to A’s and B’s capital contributions.
● Any remaining profit or loss is divided equally.

The joint operation was completed after a year. The following were the transactions:
● A contributed cash of ₱400 and merchandise costing ₱800.
● B contributed merchandise costing ₱1,600. B paid freight of ₱80 in the transfer.
● C purchased merchandise worth ₱400 using A’s cash contribution.
● C paid expenses of ₱800 using his own cash.
● C made total sales of ₱3,200.
● All inventories were sold except one-half of those contributed by B.

17. How much is the joint operation’s profit after deduction for salary but before deduction for bonus?

18. On the cash settlement between the joint operators,

a. A pays ₱1,288.
b. B pays ₱1,816.
c. C receives ₱96.
d. All of these

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 960 720
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is divided
equally.

19. How much is the profit (loss) of the joint operation?

a. 200,000
b. (200,000)
c. 180,000
d. (180,000)
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20. On the cash settlement between the joint operators,

a. A pays B ₱368
b. B pays A ₱368
c. A pays B ₱428
d. B pays A ₱428

21.
A, B and C formed a joint operation which was completed during the year. A, the appointed manager,
is entitled to a bonus of 10% of the profit before deducting the bonus. Any remaining profit or loss is
divided equally. On the joint operation’s completion date, B’s and C’s books show the following
balances before adjusting and closing entries:
Books of B Books of C
Account with A 16 Cr. 16 Cr.
Account with B 48 Cr.
Account with C 56 Dr.

The unsold merchandise was charged to A at a cost of ₱88. On the cash settlement between the joint
operators,
a. A receives ₱48.
b. B pays ₱72.
c. C pays ₱32.
d. a and c

22.
A, B and C formed a joint operation. Profit or loss shall be divided equally. On the joint operation’s
completion date, the books of A, the appointed manager, show the following account balances:
Debit Credit
JO – Cash 80
Joint operation 20
B Co. 60
C Co. 40
A’s share in the joint operation’s profit is ₱16. A agreed to be charged for the unsold merchandise. How
much is the cost of unsold merchandise charged to A?

23.
A, B, and C formed a joint operation. On the joint operation’s completion date, the books of A, the
appointed manager, show the following account balances:
Debit Credit
JO – Cash 80
Account with B 60
Accounting with
C 88

The cost of unsold inventory is ₱72. The joint operation’s profit is ₱44. How much is the balance of the
joint operation account before distribution of profit?

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱40 each. Profit
and loss shall be divided equally. The following data relate to the joint operation’s transactions:
A B C
Joint operation 32 Cr. 40 Cr. 48 Cr.
Expenses paid from JO cash 20 8 12
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Value of inventory taken 20 24 16

24. How much is the joint operation’s sales?

25. How much is the cash settlement to B?

a. ₱80 receipt
b. ₱80 payment
c. ₱32 receipt
d. ₱76 receipt

26. On January 1, 20x1, PATRIMONY Co. entered into a joint arrangement classified as a joint venture.
For an investment of ₱2,000,000, PATRIMONY Co. obtained 30% interest in HERITAGE Joint
Venture, Inc. During the year, HERITAGE Joint Venture, Inc. reported profit of ₱4,000,000 and other
comprehensive income of ₱800,000, i.e., a total comprehensive income of ₱4,800,000. HERITAGE
Joint Venture, Inc. declared dividends of ₱2,400,000. How much is the carrying amount of the
investment in joint venture on December 31, 20x1?

27. An arrangement of which two or more parties have joint control.

a. joint operation
b. joint venture
c. joint arrangement
d. elbow joint

28. The contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.
a. significant influence
b. joint control
c. control
d. contractual control

29. A joint arrangement whereby the parties that have joint control of the arrangement have rights to
the net assets of the arrangement.
a. joint operation
b. joint venture
c. joint arrangement
d. elbow joint

30. A joint arrangement whereby the parties that have joint control of the arrangement have rights to
the assets, and obligations for the liabilities, relating to the arrangement.
a. joint operation
b. joint venture
c. joint arrangement
d. elbow joint

31. A party to a joint operation that has joint control of that joint operation.
a. joint operationist
b. joint venturer
c. joint arranger
d. joint operator
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32. A party to a joint venture that has joint control of that joint venture.
a. joint venturist
b. joint operationer
c. joint arrangement
d. joint venturer

33. According to PFRS 11, it is an entity that participates in a joint arrangement, regardless of whether
that entity has joint control of the arrangement.
a. joint arranger
b. party to a joint arrangement
c. minority interest
d. participating cat

34. According to PFRS 11, it is a separately identifiable financial structure, including separate legal
entities or entities recognized by statute, regardless of whether those entities have a legal
personality.
a. separate vehicle
b. special purpose entity
c. special purpose vehicle
d. public utility vehicle

35. In a joint arrangement, which of the following establishes joint control by the parties?
a. mutual sharing of control
b. ownership interest of more than 20%
c. contractual arrangement
d. stock certificate

36. A joint arrangement in which the assets and liabilities relating to the arrangement are held in a
separate vehicle.
a. joint operation
b. joint venture
c. joint arrangement
d. can be either a or b

“Peace I leave with you; my peace I give you. I do not give to you as the world gives. Do NOT let
your hearts be troubled and do NOT be afraid.” (John 14:27)
- END -
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ANSWERS:
1. D
2. E
3. A
4. Equipment at net selling price of 800,000

5. 1,620,000
Solution:
Liquidation costs 120,000
Salaries payable 100,000
Current tax payable 1,400,000
Unsecured creditors w/ priority 1,620,000

6. 5,184,000
Solution:
Excess of note payable (1.2M - 800K RV of equipt.) 400,000
Accrued exp., net of sal. (884K - 100K) 784,000
Accounts payable 4,000,000
Unsecured creditors without priority 5,184,000

7. C
Solution:
Net free assets
Estimated recovery percentage of unsecured
= Total unsecured liabilities without
creditors without priority
priority

Cash 160,000
Accounts receivable (880K x 76%) 668,800
Note receivable 400,000
Interest receivable 40,000
Inventory (1.68M - 40K) 1,640,000
Prepaid assets -
Land and building 10,400,000
Equipment 800,000
Total assets at realizable value 14,108,800
Less: Fully secured liabilities:
Loan payable (8,000,000)
Interest payable (60,000) (8,060,000)
Less: Partially secured:
Realizable value of equipment (800,000)
Total free assets 5,248,800
Less: Unsecured creditors w/ priority:
Liquidation costs (120,000)
Salaries payable (100,000)
Current tax payable (1,400,000) (1,620,000)
Net free assets 3,628,800

⮚ 3,628,800 ÷ 5,184,000 see previous solution = 70%

8. ₱14,640,000, see solution below

9. ₱15,484,000 see solution below

10. 112,000
Solution:
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Debits Credits
Assets to be realized 14,640,000 13,520,000 Assets realized
Assets acquired 40,000 1,060,000 Assets not realized

Liabilities to be
Liabilities liquidated 10,440,000 15,484,000
liquidated
Liabilities not liquidated 4,784,000 60,000 Liabilities assumed

Supplementary expenses 108,000 - Supplementary income

Totals 30,012,000 30,124,000 Totals
Net gain - excess credits over debits 112,000

● Assets to be realized is ₱14,640,000, equal to the total book value of the assets, excluding cash,
transferred to the receiver (₱14,840,000 total assets less ₱160,000 cash).
● Assets acquired is ₱40,000, representing the previously unrecorded interest receivable.
● Assets realized is equal to the actual net proceeds from the sale of assets, as summarized below:
a. Collection of accounts receivable 660,000
b. Collection of the note and interest 400,000
c. Sale of half of the inventory 1,180,000
e. Sale of land and building 10,400,000
f. Sale of equipment 880,000
Assets realized 13,520,000

● Assets not realized is equal to the book value of the unsold inventory of ₱1,060,000 (₱2,120,000 x
50%).
● Liabilities to be liquidated is ₱15,484,000, equal to the total book value of the liabilities transferred
to the receiver.
● Liabilities assumed is ₱60,000, representing the previously unrecorded interest payable.
● Liabilities liquidated is equal to the actual settlement amounts of the liabilities settled, as summarized
below:
g. Payment for accrued expenses 100,000
h. Payment for current tax payable 1,400,000
i. Payment for loan and interest 8,060,000
j. Payment for note payable 880,000
Liabilities liquidated 10,440,000

● Liabilities not liquidated is equal to the total book value of the unsettled liabilities summarized
below:
Accrued expenses 784,000
Accounts payable 4,000,000
Liabilities to be liquidated 4,784,000

● Supplementary expense is ₱108,000, the administrative expenses paid during the period.
● There is no supplementary income during the period.

11. C
12. B
13. C
14. B
15. C
16.. D
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17. 240
Solutions:
Profit or loss is computed as follows:

Joint operation

Merchandise – A 800 3200 Sales – C

Purchases - A's cash 400

Merchandise – B 1600 840 Unsold inventory charged to C*

Freight - in – B 80
Expenses – C 800

360 Profit before salary and bonus - Credit balance

Salaries expense - C 120

Profit after salary but before bonus - Credit
240 balance

Bonus expense** 48

192 Profit after salary and bonus

*Unsold inventory: (₱1,600 plus ₱80 freight-in) multiplied by one-half.

**Bonus is computed as follows:

P
B = P -
1 + Br

B = 240 – (240 ÷ 1.25%) = 48

18. C
Solution:
Profit is allocated to the joint operators as follows:

Allocation to: A B C Totals

Profit before salary and bonus 360

Salary to C 120 (120)
Bonus to C (see previous computation) 48 (48)
Profit after salary and bonus
192
Interest on capital:
-
A - (300 x 10%) 120 (120)
B - (420 x 10%) 168 (168)
Profit after interests on capital
(96)
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Allocation (24 ÷ 3) (32) (32) (32) 96

Net share - as allocated 88 136 136 -

Cash settlement is determined as follows:

Joint operation - A

Inventory contributed by A 400

Cash contribution 800
Net share in profit 88
Cash settlement – receipt 1,288

Joint operation - B

Inventory contributed 1,600

Freight paid 80
Net share in profit 136
Cash settlement – receipt 1,816

Joint operation – C

Expenses paid 800 840 Cost of inventory taken

Net share in profit 136

Cash settlement – receipt 96

19. A
Solution:
Requirement (a): Profit or loss

Joint operation - A

Purchases – A Sales – A
400 960
Purchases – B 320 720 Sales – B

Expenses – A 800 40 Other income – B

200 Profit - credit balance

20. B
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Solution:
Profit is allocated as follows:

Allocation to: A B Totals

Profit for the year 200

10% commission on purchases:

(10% x 400) – A 40 (40)

(10% x 320) – B 32 (32)

20% commission on sales:

(20% x 960) – A 192 (192)

(20% x 720) – B 144 (144)

Total to be divided equally (208)

Allocation: (208 ÷ 2) (104) (104) 208

Net share - as allocated 128 72 -

Cash settlement is determined as follows:

Joint operation - A

Purchases Collections on sales

400 960
Expenses 800
Net share 128
Cash settlement – receipt 368

Joint operation – B

Purchases Collections on sales

320 720
Net share 72 40 Collections on other income

368 Cash settlement - payment

21. C
Solution:
The joint operation’s profit is computed as follows:

Joint operation

Account with A 16 56 Account with C

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Account with B 48 88 Unsold inventory

80 Profit before bonus - credit balance

Profit is allocated as follows:

Allocation to: A B C Totals

Profit before bonus 80

Bonus to A (80 x 10%) 8 (8)

Profit after bonus 72

Equal allocation (72 ÷ 3) 24 24 24 (72)

As allocated 32 24 24 -

Cash settlement is determined as follows:

Joint operation – A

Contributions 16 88 Inventory taken

Net share in profit 32

40 Cash settlement - payment

Joint operation – B

Contributions 48

Net share in profit 24

Cash settlement – receipt 72

Joint operation – C

56 Withdrawals

Net share in profit 24

32 Cash settlement - payment

22. 68
Solution:

Joint operation

Debit balance 20
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68 Unsold merchandise (squeeze)

48 Profit - credit balance (₱16 x 3)

23. 28
Solution:

Joint operation

Debit balance (squeeze) 28

72 Unsold merchandise

44 Profit - credit balance

24. 280
Solution:

Joint operation

Initial contributions
(10 x 3) 120

Expenses (5 + 2 + 3) 40 280 Sales (squeeze)

120 Credit balance (8 + 10 + 12)

25. D
Solution:
Joint operation

Initial contributions (40 x 3) 120 280 Sales

Expenses (20 + 8 + 12) 40 60 Unsold merchandise (20+24+ 16)

180 Profit - net credit balance

Joint operation – B

Inventory
Contributions 40 24 taken

Share in profit (180 ÷ 3) 60

Cash settlement - receipt 76

26. 2,720,000
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Solution:
Initial investment, Jan. 1 2,000,000
Share in profit of joint venture (4M x 30%) 1,200,000
Share in OCI of joint venture (800K x 30%) 240,000
Dividends received from joint venture (2.4M x 30%) (720,000)
Investment in joint venture, Dec. 31, 20x1 2,720,000

27. C
28. B
29. B
30. A
31. D
32. D
33. B
34. A
35. C
36. D