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Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise.

Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. Following is a trial balance as of March 14, 2017.

Debit Credit
Accounts payable $ 33,000
Accounts receivable $ 25,000
Accumulated depreciation, building 50,000
Accumulated depreciation, equipment 16,000
Additional paid-in capital 8,000
Advertising payable 4,000
Building 80,000
Cash 1,000
Common stock 50,000
Equipment 30,000
Inventory 100,000
Investments 15,000
Land 10,000
Note PayableColorado Savings and Loan (secured by lien on land and building) 70,000
Note PayableFirst National Bank (secured by equipment) 150,000
Payroll taxes payable 1,000
Retained earnings (deficit) 126,000
Salaries payable (owed equally to two employees) 5,000
Totals $ 387,000 $ 387,000

Assume that the company will be liquidated and the following transactions will occur:

  • Accounts receivable of $18,000 are collected with remainder written off.
  • All of the company's inventory is sold for $40,000.
  • Additional accounts payable of $10,000 incurred for various expenses such as utilities and maintenance are discovered.
  • The land and building are sold for $71,000.
  • The note payable due to the Colorado Savings and Loan is paid.
  • The equipment is sold at auction for only $11,000 with the proceeds applied to the note owed to the First National Bank.
  • The investments are sold for $21,000.
  • Administrative expenses total $20,000 as of July 23, 2017, but no payment has yet been made.

  1. Prepare a statement of realization and liquidation for the period from March 14, 2017, through July 23, 2017.

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