Tower Inc. advises you that it is facing bankruptcy proceedings. As the companys CPA, you are aware
Question:
Additional Information
1. Cash includes a $500 travel advance that has been expended.
2. Accounts receivable of $40,000 have been pledged in support of bank loans of $30,000. Credit balances of $5,000 are netted in the accounts receivable total.
3. Marketable securities consist of government bonds costing $10,000 and 500 shares of Dawson Company stock. The market value of the bonds is $10,000, and the stock is $18 per share. The bonds have $200 of accrued interest due. The securities are collateral for a $20,000 bank loan.
4. Appraised value of raw materials and finished goods is $30,000 and $50,000, respectively. For an additional cost of $10,000, the raw materials could realize $70,000 as finished goods.
5. The appraised value of fixed assets is $25,000 for land, $110,000 for buildings, and $75,000 for machinery.
6. Prepaid expenses will be exhausted during the liquidation period.
7. Accounts payable include $15,000 of withheld payroll taxes and $6,000 owed to creditors who have been reassured by the president of Tower that they will be paid. There are unrecorded employers payroll taxes in the amount of $500.
8. Wages payable are not subject to any limitations under bankruptcy laws.
9. Mortgages payable consist of $100,000 on land and buildings and $30,000 for a chattel mortgage on machinery. Total unrecorded accrued interest for these mortgages amounts to $2,400.
10. Estimated legal fees and expenses in connection with the liquidation are $10,000.
11. The probable judgment on a pending damage suit is $50,000.
12. You have not rendered an invoice for $5,000 for last years audit, and you estimate a $1,000 fee for liquidation work.
Required
a. Prepare a statement of affairs. (The Book Value column should reflect adjustments that properly should have been made as of December 31, 20X1, in the normal course of business.)
b. Compute the estimated settlement per dollar of unsecuredliabilities.
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....
Step by Step Answer:
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker