Question
PART A The trial balance of Freyja Ltd on 14 July 20X1, the date on which the court ordered that the company be wound up,
PART A The trial balance of Freyja Ltd on 14 July 20X1, the date on which the court ordered that the company be wound up, is presented below.
FREYJA LIMITED
TRIAL BALANCE
as at 14 July 20X1
Debit Credit
Cash . $ 1,800
Accounts receivable 72,000
Allowance for bad debts $ 5,000
Inventory 35,000
Goodwill 30,000
Land 150,000
Buildings 300,000
Accumulated depreciation: Buildings 150,000
Plant and equipment 210,000
Accumulated depreciation: Plant and equipment 160,000
Accounts payable 70,000
Tax payable 49,000
Short-term loan (unsecured) 15,000
Preference dividend payable 7,500
Mortgage on land and buildings. 110,000
Retained earnings 179,950
General reserve 38,500
75,000 Preference shares issued at $1 fully paid 75,000
150,000 A Ordinary shares issued for $2, paid to $1.50 225,000
100,000 B Ordinary shares issued for $1, called to 75 75,000
Call in arrears: 5,000 B Ordinary shares @ 25 1,250
$ 980,000 $ 980,000
Additional information
(a) The liquidation expenses amounted to $5,200.
(b) Other liabilities accepted by the liquidator but not yet recorded are:
Interest on mortgage $ 3,000
Increase in accounts payable 2,500
Wages payable 3,500
Interest on short-term loan 700
(c) Freyja Ltd owes none of the wages identified in (b) to excluded employees.
(d) At the commencement of the winding-up, the assets were expected to realize:
Accounts receivable $ 64,000
Inventory 33,000
Land and buildings 190,000
Plant and equipment 42,000
(e) The mortgage holder took possession of the land and buildings and sold them for $200,000, paid off the mortgage, and refunded the difference to the liquidator.
(f) Calls in arrears on 5,000 B Ordinary shares realized $1,250 in cash.
(g) The assets realized the following amounts in cash:
Accounts receivable $ 65,000
Inventory 36,000
Plant and equipment 45,000
(h) Payments made on accounts payable after negotiation with the trade creditors were $69,250.
(i) The constitution is silent on the question of arrears of preference dividends.
(j) The order of priority for the return of capital provided for in the constitution is (1) preference shares and (2) ordinary shares. The constitution states that A Ordinary and B Ordinary shareholders rank equally regarding the return of capital based on the number of shares held. Any calls necessary to adjust the rights of contributors are recoverable.
Required
1. Prepare a report/summary of affairs as at 14 July 20X1. Base your report/summary on the example of Fern Ltd on pages 1248-1250 of the textbook. Assume wages payable will receive preference over any debts secured by a circulating security interest and unsecured creditors for the purposes of this exercise.
2. Prepare all the relevant journal entries in Freyja Ltd to wind up the company. Narrations are required. Show clearly the order of priority of payment to the creditors
3. Show clearly any workings in relation to the final distribution to shareholders.
4. Prepare the liquidation account, the shareholder's distribution account, and liquidator's receipts and payments (cash) account. Show all of the relevant detail in the account entries (i.e. do not aggregate transactions into one amount).
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