RECEIVERSHIP

A rehabilitation receiver has been appointed for Ace Enterprises on January 2, 2015, which is going to be rehabilitated according to FRIA 2010. On
this date, its trial balance showed the following:
Debit

Credit

Cash
P 160,000
Accounts Receivable
76,000
Marketable Securities
24,000
Inventory
120,000
Plant & Equipment
210,000
Accumulated Depreciation
P 18,000
Accounts Payable
296,000
Notes Payable at 10%
225,000
Interest Payable
12,500
Common Stock, par 10
445,000
Retained Earnings
406,500
_______
Totals
P 996,500
P 996,500
The assets were transferred to the receiver, Atty. Alice De Gracia. The liabilities remained under the possession of Ace Corporation.
Summary of activities for 2008:
a.
Sales revenue earned, P150,000 on account basis and P75,000 on cash basis.
b.
Cost of sales represented all the inventory transferred to De Gracia.
c.
The receiver sold all the marketable securities for P21,000.
d.
Collections from accounts transferred, P42,000 and from new accounts, P94,000.
e.
Sold half of the plant and equipment for P150,000.
f.
Recorded P12,000 depreciation and wrote off old accounts of P5,000.
g.
Receiver paid old accounts, P124,000 and for operational needs, P28,600.
h.
The business was transferred back to the corporation.
i.
Other creditors holding P100,000 notes with accrued interest of P2,500 opted to be paid in the form of shares of stocks which had a fair
value of P50 but fell to P20 at the point of reorganization.
Required:
a.
b.
c.
d.
e.

Prepare entries in both books for (a) to (h).

Prepare a statement of realization and liquidation
Compute for the following balances: cash and retained earnings
Give the totals of the assets, liabilities and SHE post rehabilitation. Comment on its financial status.
Change (d) to make way for (i) and comment again on its financial status.

1. A rehabilitation receiver has been appointed for Ace Enterprises which is being liquidated according to the FRIA 2010. On this date, its trial
balance showed the following:
Debit
Cash
Accounts Receivable
Marketable Securities
Inventory
Plant & Equipment
Accumulated Depreciation
Accounts Payable
Notes Payable at 10%
Interest Payable
Common Stock (P10 par value)
Retained Earnings
Totals

Credit

60,000
76,000
24,000
120,000
210,000
P

190,000
P1,848,500

18,000
296,000
225,000
12,500
445,000
_______
P1,848,500

The following transactions occurred after the assets were transferred to the receiver, Atty. Alice De Gracia:
a.
Sales by the receiver were: P150,000 on account basis and P75,000 on cash basis. Cost of Goods sold consisted of all inventory
transferred by Face.
b.
The receiver sold all the marketable securities for P21,000.
c.
Collections made out of:
Accounts transferred P42,000
New accounts P94,000
d.
Sold half of the plant and equipment for P150,000.
e.
Recorded P12,000 depreciation.
f.
Disbursement by the receiver:
Old accounts payable P124,000
Receivers operating expenses P28,600
g.
Wrote off bad accounts of old customers, P5,000.
h.
The other creditors opted to get paid in the form of new shares of stocks which had a fair value of P50 but fell to P20 per share at point
of reorganization.
i.
The business was transferred back to Ace Company.
Required:
a.
Prepare entries in both books of De Gracia and Ace.
b.
Statement of realization and liquidation
c.
Computations to determine balances after reorganization for:
1.
cash
2.
total paid in capital
3.
retained earnings
d.
Based on your answers in (c), was the rehabilitation successful?

2. On January 2, 2015, Popeye Corporation filed a petition for relief under the Revised Bankruptcy Act. On this date, its trial balance showed the
following:
Debit
Cash
Accounts Receivable
Inventory
Plant & Equipment
Accumulated Depreciation
Accounts Payable
Bonds Payable, 8%
Notes Payable, 10%
Accrued Interest on notes
Common Stock, par P100
Retained Earnings
Totals

Credit

60,000
130,000
204,000
1,040,000

204,500
P1,638,500

P 310,000
271,000
500,000
325,000
32,500
200,000
_______
P1,638,500

The business was under a rehabilitation receiver for the whole year. The assets and liabilities were transferred to MN Pangan, Receiver.
Summary of activities for 2015:
1.
Credit sales revenue earned, P702,000.
2.
Collections of P432,000 from new accounts and P96,000 from old accounts.
3.
Purchases on account amounted to P275,000.
4.
Paid for operational needs, P150,000 including P30,000 receiver expenses.
5.
Total accounts payable paid P332,000 of which P131,000 came from the new purchases
6.
Sale of plant assets with a book value of P320,000. Loss was incurred in the amount of P50,000.
7.
P200,000 of the old notes were paid and its accrued interest at the reduced rate of 5%.
8.
Inventory on hand was 15% of the new stock.
9.
Doubtful account is 5% of the outstanding balance.
10. Additional depreciation is recorded in the amount of P10,000.
11. Bond interest was paid for the whole year at the rate of 8%.
12. Accrue interest for another year on the balance of the notes payable was at the reduced rate of 5%.
Required:
a.
Prepare entries in the books of the receiver.
b.
Prepare a statement of realization and liquidation.
c.
Show the difference between the sum of the assets to be realized and assets acquired and the sum of the assets realized and the assets
not realized. Does it tally with the cost and expenses not appearing in the supplementary charges? Explain. What about for the
liabilities?
d.
Determine the cash balance and the balance of the retained earnings using T Accounts.
e.
Did the one-year rehabilitation change the financial status of the firm from insolvent to being solvent?