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 160,000Accounts Receivable 76,000Marketable Securities 24,000Inventory 120,000Plant & Equipment 210,000Accumulated Depreciation P 18,000Accounts Payable 296,000Notes Payable at 10% 225,000Interest Payable 12,500Common Stock, par 10 445,000Retained 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. Prepare entries in both books for (a) to (h).b. Prepare a statement of realization and liquidationc. Compute for the following balances: cash and retained earningsd. Give the totals of the assets, liabilities and SHE post rehabilitation. Comment on its financial status.e. 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 Credit

Cash P 60,000

Accounts Receivable 76,000Marketable Securities 24,000Inventory 120,000Plant & Equipment 210,000Accumulated Depreciation P 18,000Accounts Payable 296,000Notes Payable at 10% 225,000Interest Payable 12,500Common Stock (P10 par value) 445,000Retained Earnings 190,000 _______Totals P

1,848,500P1,848,500

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 P42,000New 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 P124,000Receiver’s 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 liquidationc. Computations to determine balances after reorganization for:

1. cash2. total paid in capital3. 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 Credit

Cash P 60,000Accounts Receivable 130,000Inventory 204,000Plant & Equipment 1,040,000Accumulated Depreciation P 310,000Accounts Payable 271,000Bonds Payable, 8% 500,000Notes Payable, 10% 325,000Accrued Interest on notes 32,500Common Stock, par P100 200,000Retained Earnings 204,500 _______Totals P1,638,500 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?