Liquidation Basis of Accounting

Farmworth Company entered liquidation on March $1.$ The book value of its assets totaled $$400,000,$ including $$10,000$ in cash, and the book value of its liabilities totaled $$360,000.$ Expected proceeds from reported assets other than cash were:

Receivables, $$30,000$

Inventory, $$70,000$

Plant and equipment, $$175,000$

Expected costs of liquidating assets were $$25,000.$

During the three months ending June $1,$ the company collected $$10,000$ in receivables, sold inventory for $$30,000,$ and paid liquidation costs of $$12,000.$ Reported liabilities of $$30,000$ were paid. At the end of three months, estimated valuations on remaining assets and liabilities are as follows:

$1.$ Expected proceeds from reported assets other than cash are:

$$ Receivables, $$22,000$

$$ Inventory, $$20,000$

$$ Plant and equipment, $$160,000$

$2.$ Newly identified unreported assets can be liquidated for an estimated $$8,000.$

$3.$ Expected costs of liquidating assets are $$18,000.$

$4.$ A creditor holding a loan with a book value of $$25,000$ agrees to accept $$15,000$ as full payment.

Required

a$.$ Prepare a statement of changes in net assets in liquidation as of June $1.$

Use negative signs with your answers, when appropriate.

Farmworth Company

Statement of Changes in Net Assets in Liquidation

For the $3$ Months Ending June $1$

Net assets, March $1$ Answer

$(100,000)$

Remeasurement adjustments on assets:

Receivables Answer

$8,000$

Inventory Answer

$20,000$

Plant and equipment Answer

$160,000$

Items previously not recognized Answer

$8,000$

Remeasurement of liabilities Answer

$10,000$

Adjustment for accrued liquidation costs Answer

$7,000$

Net assets, June $1$ Answer

$0$

b$.$ Prepare a statement of net assets in liquidation as of June $1.$

Use a negative sign with your net assets answer, if appropriate.

Farmworth Company

Statement of Net Assets in Liquidation

June $1$

Assets

Cash Answer

$0$

Receivables Answer

$0$

Inventory Answer

$0$

Plant and equipment Answer

$0$

Items not previously reported Answer

$0$

Total Assets Answer

$0$

Liabilities

Reported liabilities Answer

$0$

Accrued liquidation costs Answer

$0$

Total liabilities Answer

$0$

Net assets Answer

$0$

Feedback

Partially correct