Solution manual advanced accounting 4e jeter ch10

To download more slides, ebook, solutions and test bank, visit

CHAPTER 10
ANSWERS TO QUESTIONS
1. Extension of payment periods. The debtor continues to manage the business, and the creditors
merely extend the payment due date(s) for existing debts.
Composition agreements. A composition agreement is an agreement between the debtor company
and its creditors under which the creditors agree to accept less than the full amount of their claims.
Formation of a creditor’s committee. The debtor company and its creditors agree to form a
committee of creditors responsible for managing the debtor’s business affairs for the period during
which plans are developed to rehabilitate, reorganize, or liquidate the business.
Voluntary assignment of assets. An insolvent debtor elects to voluntarily place his property under
the control of a trustee for the benefit of his creditors.
2. In a voluntary petition, the debtor files a petition with a bankruptcy court for liquidation under
Chapter 7 or for reorganization under Chapter 11. The bankruptcy judge may refuse a voluntary
petition if refusal is considered to be in the best interest of the creditors.
In an involuntary petition, creditors initiate the action by filing a petition for liquidation or
reorganization with the bankruptcy court. If there are twelve or more creditors, the petition must be
signed by three or more of such creditors whose claims aggregate at least $5,000 more than the
value of any liens on the property of the debtor. If there are fewer than twelve creditors, the
petition may be filed by one or more of such creditors whose claims aggregate at least $5,000 more
than the value of any liens on the debtor’s property.
3. Fully secured claims. Those claims with liens against specific assets whose realizable value is
equal to or in excess of the claim.
Partially secured claims. Those claims with liens against specific assets whose realizable value is
less than the amount of the claim.
Unsecured claims. Those claims that are not secured by liens against specific assets and are,
therefore, paid from whatever total money remains after secured creditors are satisfied. Some
unsecured claims take priority over others under federal bankruptcy law.

10 - 1

To download more slides, ebook, solutions and test bank, visit

4. The five categories of unsecured claims with priority are:
a. Administrative expenses, fees, and charges incurred in administering the bankrupt’s estate.
b. Unsecured claims for wages, salaries, or commissions earned by an employee within 90 days
before the date of filing a petition in bankruptcy, limited to the extent of $4,650 per employee.
c. Claims for contributions to employee benefit plans from services rendered within 180 days
before the date of filing a petition in bankruptcy, but subject to certain limitations.
d. Unsecured claims of individuals, to the extent of $2,100 for each such individual, arising from
the deposit of money in connection with the purchase, lease, or rental of property or services
that were not delivered or performed.
e. Claims of governmental units for unpaid taxes.
5. Dividends represent the final distribution made to general unsecured creditors.
6. a. Transfer of Assets:
The transfer of assets by a debtor to a creditor generally produces two types of gain or loss. A
gain on restructuring of debt is recognized for the excess of the carrying value of the payable
over the fair value of the assets transferred. This gain is reported as a component of operating
income. In addition, a gain or loss on transfer of assets is recognized for the difference between
the fair value and book value of the assets transferred. This gain (loss) is reported as a
component of operating income also.
b. Grant of an Equity Interest:
A debtor who grants an equity interest to a creditor will report a gain for the difference between
the fair value of the equity interest issued and the carrying amount of the payable settled.
c. Modification of Terms:
In a modification of terms, the debtor will report a gain on restructuring only if the total future
cash payments specified by the new terms are less than the carrying value of the payable. The
amount of gain is measure as the difference between the total future cash payments specified by
the new terms and the carrying value of the payable.

7. The statement of affairs is an accounting report that is designed to permit interested parties to
determine the total expected amounts that could be realized from the disposition of a company’s
assets, the priorities in the use of the realization proceeds in satisfying claims, and the potential net
deficiency that would result if the assets were realized and claims liquidated.
8. The officer is incorrect. Some claims, such as for taxes, fines, and penalties are not discharged.

10 - 2


To download more slides, ebook, solutions and test bank, visit

9. The primary duties of a trustee are:
a. To be accountable of all property received.
b. To examine proofs of claims and object to the allowance of any claim that is improper.
c. To furnish such information concerning the estate and the estate’s administration as is requested
by a party in interest.
d. If the business of the debtor is authorized to be operated, file with the court and with any
governmental unit charged with responsibility for collection of any tax arising out of such
operation, periodic reports and summaries of the operation of the business.
e. If the debtor has not done so, file with the court a list of creditors, a schedule of assets and
liabilities, and a statement of the debtor’s financial affairs.
f. If applicable, file a plan of reorganization, and, if the plan is accepted, file such reports as are
required by the court.
10. The purpose of a combining workpaper is to serve as a means by which the trustee’s accounts are
united with the debtor company’s accounts in order to prepare appropriate financial statements.
11. The purpose of a realization and liquidation account is to report summary realization and
distribution activities of a trustee or receiver to the court. It reports the changes that have occurred
during a period in the monetary items because that is what the court officials are primarily
interested in.
BUSINESS ETHICS SOLUTIONS

1. In chapter 7 bankruptcy liquidation, firms are assumed to be past the stage of reorganization and
must sell off any un-exempt assets to pay creditors. In contrast, Chapter 11 bankruptcy allows
the firm the opportunity to reorganize its debt and to try to re-emerge as a healthy organization.
In both cases, the creditors and other claim-holders suffer losses as they will be most likely
getting less return on investment than expected at the time of the initial decision to invest in the
company. From an ethical perspective, a chapter 11 bankruptcy provides the creditors and other
claim-holders a better chance of recovering higher value for their investments than under
chapter 7 as the firm strives to recover and reorganize under chapter 11 but not under chapter 7.
2. The new law makes sweeping changes to American bankruptcy laws and makes it more
difficult for individuals to file bankruptcy under chapter 7. The new law requires a means test to
determine whether the borrowers have enough resources to pay for their debts. For additional
information, see the following link:
/>
In addition the new law laid down the following requirements
Mandatory credit counseling and debtor education
Additional filing requirements and fees
Increased attorney liability and costs
Fewer automatic protections for filers
Increased compliance requirements for small businesses
Increased amount of debt repayment under Chapter 13
Increased length of time between discharges

10 - 3


To download more slides, ebook, solutions and test bank, visit

These changes provide more safety for the creditors, who should consequently be better
protected. Individuals who fail the means test may opt instead for Chapter 13, which involves a
repayment of their debt over time.

3. Applying this test to businesses would benefit the creditors and other claim-holders, as they
would feel a slight buffer to their risk, which might stimulate new business as a result of easier
fund raising. It may also prevent businesses from venturing into unduly risky areas as they
would not be able to bail out as easily by filing under chapter 7 if things went wrong (hence
becoming somewhat more risk averse). It would seem to shift the risk balance somewhat to the
shoulders of the entrepreneur from those of the investor.
4. Filing for bankruptcy is never a desirable or ethical option, but sometimes circumstances may
arise that seem to force a business or an individual into this tough situation. Whether the
individual finds another way at such a time or not is a personal issue and an ethical dilemma,
and there is not necessarily a correct answer to this question. The purpose of this discussion is
to get the student to thinking about his or her personal position, and where his ethical stance
would be before the situation arises. Ideally, of course, the student will never find himself or
herself in such a position, but, as the old saying goes, until you’ve walked a mile in another’s
shoes…

ANSWERS TO EXERCISES
Exercise 10-1
1. a
2. b
3. a

4. c
5. b

10 - 4


To download more slides, ebook, solutions and test bank, visit

Exercise 10-2

1. False

Insolvency is the inability to pay debts as they become due. Classification as to current
and long-term is irrelevant.

2. True
3. True
4. False

Secured creditors are paid first from the proceeds of sale of specific assets. If there are
proceeds remaining, unsecured creditors with priority will be paid before other
unsecured creditors.

5. True
6. False

A gain on restructuring is measured by the excess of the carrying value of the payable
settled over the fair value of the assets transferred.

7. False

Restructuring gains from troubled debt restructurings are reported by the debtor as a
separate component of operating income.

8. False

The statement of affairs is a report that shows the estimated amount to be paid to each
class of claim in the event of liquidation.

Exercise 10-3

Part A Copyright
50,000
Gain on Transfer of Assets
50,000
To revalue the copyright to its current fair value. [$95,000 – ($100,000 - $55,000)]
Notes Payable
Accrued Interest Payable
Accumulated Amortization – Copyright
Copyright ($100,000 + $50,000)
Gain on Debt Restructuring

150,000
15,000
55,000
150,000
70,000

Part B The gain on transfer of assets ($50,000) should be reported as a separate component (assuming
material in amount) of operating income; the gain on restructuring ($70,000) should also be
reported as a separate component of operating income.
Part C Loss on Transfer of Assets
15,000
Copyright
15,000
To revalue the copyright to its current fair value. [$30,000 – ($100,000 - $55,000)]
Notes Payable
Accrued Interest Payable
Accumulated Amortization – Copyright
Copyright ($100,000 - $15,000)
Gain on Debt Restructuring ($165,000 - $30,000)

10 - 5

150,000
15,000
55,000
85,000
135,000


To download more slides, ebook, solutions and test bank, visit

Exercise 10-4
Part A No gain should be recognized because the total future cash payments specified by the new
terms of $1,144,250 ($995,000 carrying value plus 3 years’ interest at $49,750 per year)
exceed the current carrying value of the debt, $995,000.
Part B Note Payable
Accrued Interest Payable
Restructured Debt

900,000
95,000
995,000

Exercise 10-5
Part A A gain on restructuring should be recognized because the carrying value of the debt, $995,000,
exceeds the total future cash payments specified by the new terms, $744,000 ($600,000 face
value plus $144,000 interest). The gain of $251,000 should be reported as a separate
component of operating income.
Part B Notes Payable
Accrued Interest Payable

Restructured Debt
Gain on Debt Restructuring

900,000
95,000
744,000
251,000

Part C Restructured Debt
Cash

48,000
48,000

Exercise 10-6
Realizable Value of all Assets
($190,000 + $90,000 + $102,000)
Allocated to:
Fully secured creditors
Partially secured creditors
Unsecured creditors with priority
Remainder available to general unsecured creditors

$382,000

(91,000)
(90,000)
(30,000)
$171,000

Payment rate to general unsecured creditors
(Including balance due to partially secured creditors)
$171,000 / ($350,000 + ($120,000 - $90,000))

45%

Realizable Value of Assets:
Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
Free assets
Total realizable value

$190,000
90,000
102,000
$382,000

Amounts to be paid to:
Fully secured creditors
Partially secured creditors [$90,000 + .45($30,000)]
Unsecured creditors with priority
General unsecured creditors .45($350,000)
Total

$ 91,000
103,500
30,000
157,500
$382,000

10 - 6


To download more slides, ebook, solutions and test bank, visit

Exercise 10-7
BALL COMPANY
Statement of Affairs
June 30, 2009
Book
Value

$180,000

170,000

20,400
430,000

Assets

Realizable
Value

Assets Pledged with Fully Secured Creditors:
Inventory
$110,000
Note Payable
100,000

$ 10,000

Assets Pledged with Partially Secured Creditors:
Accounts Receivable
95,000
Note Payable
100,000
Free Assets
Cash
Property and Equipment
Total Net Realizable Value
Liabilities having Priority – Wages
Net Free Assets

20,400
320,000
350,400
120,000
230,400

Estimated Deficiency to Unsecured Creditors
$800,400
Equities
Liabilities Having Priority:
$120,000
Accrued Wages

$120,000

Fully Secured Creditors:

100,000
Note Payable

$100,000

100,000

Partially Secured Creditors:
Note Payable
Accounts Receivable

Unsecured Creditors:
350,000
Accounts Payable

400,000
(269,600)
$800,400

124,600
$355,000
Unsecured

$100,000
95,000

$

5,000

350,000

Stockholders’ Equity
Common Stock
Retained Earnings (deficit)
$355,000

10 - 7


To download more slides, ebook, solutions and test bank, visit

Exercise 10-7 (continued)
BALL COMPANY
Deficiency Account
June 30, 2009
Estimated Losses:
Accounts Receivable
Inventory
Property and Equipment

Estimated Gains:
$ 75,000 Common Stock
$ 400,000
70,000 Retained Earnings
(269,600)
110,000 Estimated Deficiency to Unsecured Creditors 124,600
$255,000
$255,000

Exercise 10-8
Part A Retained Earnings
Allowance for Uncollectibles ($48,700 - $40,000)
Property and Equipment ($142,000 - $118,000)
Goodwill
To record the revaluation of assets

52,700
8,700
24,000
20,000

Common Stock - $20 par
Common Stock - $4 par ($4 10,000)
Reorganization Capital
To record the exchange of $20 par common stock for $4 par common stock.

200,000
40,000
160,000

10% Bonds Payable
Reorganization Capital
Common Stock (6,000 shares at $4 per share)
8% Bonds Payable
To record the exchange of 8% bonds and common stock for the 10% bonds.

130,000
24,000
24,000

130,000

Reorganization Capital
Retained Earnings ($81,300 + $52,700)
To eliminate the deficit in retained earnings.

134,000
134,000

10 - 8


To download more slides, ebook, solutions and test bank, visit

Exercise 10-8 (continued)
Part B

CRANE COMPANY
Balance Sheet
December 31, 2009
Cash
Accounts Receivable
Less Allowance for Uncollectibles
Inventory
Property and Equipment ($142,000 - $24,000)
Total Assets
Accounts Payable
8% Bonds Payable, due 6/30/2016
Common Stock, $4 par, 16,000 shares
Reorganization Capital ($160,000 – $24,000 - $134,000)

Total Equities

$ 33,000
$ 52,500
12,500

40,000
71,000
118,000
$262,000
$ 66,000
130,000
64,000
2,000
$262,000

Exercise 10-9
Cash
Accounts Receivable (old)
Inventory
Property and Equipment
Allowance for Uncollectibles (old)
Accumulated Depreciation
TRX Company – in Receivership ($939,400 – $16,000 - $211,500)
To record the receipt of TRX Company assets.

26,700
130,400
191,900
590,400

16,000
211,500
711,900

Cash
Accounts Receivable (new)
Sales
To record cash sales and sales on account.

31,500
264,500
296,000

Cash

319,000
76,800
242,200

Accounts Receivable (old)
Accounts Receivable (new)
Purchases
Accounts Payable (new)
To record purchases on account.

127,500
127,500

TRX Company – in Receivership
Accounts Payable (new)

Operating Expenses
Trustee Expenses
Cash
To record cash payments.

206,500
61,600
46,000
13,000
327,100

10 - 9


To download more slides, ebook, solutions and test bank, visit

Exercise 10-9 (continued)
Bad Debt Expense
Depreciation Expense
Allowance for Uncollectibles (old)
Allowance for Uncollectibles (new)
Accumulated Depreciation
To record estimated bad debts and depreciation expense.

21,600
32,400
13,000
8,600
32,400

Allowance for Uncollectibles (old)
Account Receivable (old)
To write off uncollectible accounts.

21,000
21,000

Sales
Inventory ($191,900 - $149,700)
Purchases
Operating Expenses
Trustee Expenses
Bad Debt Expense
Depreciation Expense
Income Summary
To close nominal accounts and to adjust inventory.
Income Summary
TRX Company – in Receivership
To Close income summary account.

296,000
42,200
127,500
46,000
13,000
21,600
32,400
13,300

13,300

13,300

10 - 10


To download more slides, ebook, solutions and test bank, visit

Exercise 10-10
TRX COMPANY – IN RECEVERSHIP
Combining Workpaper
December 31, 2009
Trial Balance
TRX
Trustee
Company

Adjustments and
Eliminations
Dr.
Cr.

Combined
Income
Statement

Balance
Sheet

Debits
Cash ($26,700 + $31,500 + $319,000 - $327,100)

Accounts Receivable (old)
Accounts Receivable (new)
Inventory
Property and Equipment
Purchases
Operating Expenses
Trustee Expenses
Bad Debt Expense
Depreciation Expense
Cost of Goods Sold ($191,900 + $127,500 - $149,700)
Your Name, Trustee
Total

50,100
53,600
22,300
191,900
590,400
127,500
46,000
13,000
21,600
32,400

1,148,800

(1)
505,400
505,400

(1)

42,200

(1)

127,500

50,100
53,600
22,300
149,700
590,400
46,000
13,000
21,600
32,400
169,700

169,700
(2)

505,400
282,700

866,100

Credits
Allowance for Uncollectibles: (Old)
(New)

Accumulated Depreciation
Accounts Payable: (Old)
(New)
Capital Stock
Retained Earnings (Deficit)
Sales
TRX Company-in Receivership
Total

29,000
8,600
243,900

29,000
8,600
243,900
101,900
65,900
800,000
(396,500)

101,900
65,900
800,000
(396,500)
296,000
505,400
1,148,800

296,000

(2)
505,400

505,400
675,100

675,100

296,000
(13,300)
282,700

Net Income
(1) To adjust inventory and set up cost of goods sold.
(2) To eliminate reciprocal accounts.

10 - 11

13,300
866,100


To download more slides, ebook, solutions and test bank, visit

ANSWERS TO PROBLEMS
Problem 10-1
1.

2.

Accounts Payable
Cash ($71,600 .42)
Gain on Restructuring of Debt

71,600

Allowance for Uncollectible Accounts
Loss on Transfer of Assets
Accounts Receivable ($92,000 - $69,000)

19,450
3,550

Accounts Payable
Accounts Receivable
Gain on Restructuring of Debt ($132,400 - $69,000)
3.

Accrued Expenses
Cash

4.

Notes Payable
Accrued Interest Payable
Cash
Restructured Debt
Gain on Restructuring of Debt ($327,000 - $309,000)

30,072

41,528

23,000
132,400
69,000
63,400
14,620
14,620
300,000
27,000
9,000
300,000
18,000

Problem 10-2
Part A
1.
Allowance for Uncollectibles
Loss on Transfer of Assets
Accounts Receivable ($71,450 - $51,000)
Accounts Payable
Accounts Receivable
Gain on Restructuring of Debt
2.

3.

16,750
3,700
20,450

69,000
51,000
18,000

Patents
Gain on Transfer of Asset ($50,000 - $42,000)

8,000
8,000

Accounts Payable
Patents
Gain on Restructuring of Debt

54,000
50,000
4,000

Accrued Wages
Cash

11,900
11,900

Accounts Payable ($142,700 - $69,000 - $54,000)
Cash ( .6 $19,700)
Gain on Restructuring of Debt

19,700
11,820

7,880

10 - 12


To download more slides, ebook, solutions and test bank, visit

Problem 10-2 (continued)
4.

Notes Payable
Accrued Interest Payable
Restructured Debt – due 1/2/11
Total future cash payments:
Principal
Interest (6% $63,000)
Total
Carrying value
No gain recognized

5.

57,000
6,000
63,000
$63,000
7,560
70,560
$63,000

2

Notes Payable
Accrued Interest Payable
Restructured Debt – due 1/2/12
Gain on Restructuring of Debt

54,400
11,900
52,000
14,300

Total future cash payments:
Principal ($54,400 - $14,400)
Interest (10% $40,000) 3
Total
Carrying value ($54,400 + $11,900)
Gain on Restructuring
6.

7,

Mortgage Note Payable
Accrued Interest Payable
Common Stock (100,000 $0.50)
Paid-in Capital in Excess of Par
Gain on Restructuring of Debt ($100,500 – (100,000
Common Stock ($290,000 – (580,000
Retained Earnings
Paid-in Capital in Excess of Par

Balance 1/2/09
Loss on transfer (1)

Balance

$40,000
12,000
52,000
66,300
$14,300

$.59)

$.10)

Retained Earnings
156,800 Gain on restructuring (1)
3,700 Gain on transfer (2)
Gain on restructuring (2)
Gain on restructuring (3)
Gain on restructuring (5)
Gain on restructuring (6)
66,820

10 - 13

80,000
20,500
50,000

9,000
41,500
232,000
66,820
165,180

18,000
8,000
4,000
7,880
14,300
41,500


To download more slides, ebook, solutions and test bank, visit

Problem 10-2 (continued)
Part B

SRP COMPANY
Balance Sheet
January 2, 2009
Cash ($32,200 - $11,900 - $11,820)
Inventories
Plant and Equipment
Less Accumulated Depreciation
Land
Patents ($92,000 - $8,000 - $50,000)
Total

$ 8,480
126,600
$322,000
180,700

Restructured Debt – Due 2009
Due 2012
Common Stock, $ .10 par value,
580,000 shares outstanding
Paid-in Capital in Excess of Par
Retained Earnings since Reorganization on 1/2/09
Total
Part C 12/31/09
Interest Expense
Interest Payable ($63,000 .06)

141,300
20,800
50,000
$347,180
$ 63,000
52,000
58,000
174,180
- 0 $347,180

3,780
3,780

No interest is accrued on the debt due in 2012 because all cash payments are reductions of the

carrying value of the debt.
1/2/10
Interest Payable
Cash

3,780
3,780

Restructured Debt
Cash ($52,000 .10)

5,200
5,200

10 - 14


To download more slides, ebook, solutions and test bank, visit

Problem 10-3
Part A
PROST COMPANY
Statement of Affairs
December 31, 2009
Book
Value

Assets
Assets Pledged with Fully Secured Creditors:
$140,000 Land

$200,000
400,000 Plant and Equipment
205,000 $405,000
Mortgage Payable
Accrued Interest

350,000
3,000

353,000

Realizable
Value

$ 52,000

Assets Pledged with Partially Secured Creditors:
60,000
Notes Receivable *
57,500
76,000 Accounts Receivable
55,000
112,500
Notes Payable

2,500
4,000
43,000
60,000
51,000

12,000
10,000

225,000

Free Assets
Cash
Prepaid Expenses
Inventories:
Finished Goods (1)
Work in Process (2)
Raw Materials
Investment in Stock
Goodwill
Total Net Realizable Value
Liabilities having Priority – Accrued Wages
Net Free Assets
Estimated Deficiency to Unsecured Creditors

$858,500
* $60,000 - $2,500 = $57,500.

10 - 15

2,500
4,000
47,515
84,150
18,000
19,000

- 0 227,165
45,000
182,165
150,335
$332,500


To download more slides, ebook, solutions and test bank, visit

Problem 10-3 (continued)
Book
Value
$ 45,000

350,000

225,000

220,000

380,000
(361,500)
$858,500

Equities
Liabilities Having Priority:
Accrued Wages

Unsecured
$ 45,000

Fully Secured Creditors:
Mortgage Payable
Accrued Interest
Partially Secured Creditors:
Bank Notes Payable
Notes Receivable
Accounts Receivable

350,000
3,000
$353,000
225,000
$57,500
55,000

112,500

Unsecured Creditors:
Accounts Payable

$112,500

220,000

Stockholders’ Equity
Capital Stock
Retained Earnings
$332,500

(1) $43,000 1.3 = $55,900 .85 = $47,515
(2) ($60,000 + $30,000) 1.10 = $99,000 .85 = $84,150
Deficiency Account
December 31, 2009
Estimated Losses:
Notes Receivable
Accounts Receivable
Inventory *
Property and Equipment
Goodwill
Unrecorded Accrued Interest

Estimated Gains:
$ 2,500 Land
21,000 Investment in Stock
4,335 Common Stock
195,000 Retained Earnings
10,000 Estimated Deficiency
3,000
to Unsecured Creditors
$235,835

* ($47,515 + $84,150 + $18,000) – ($43,000 + $60,000 + $51,000)
Part B Estimated dividend to be paid general unsecured creditors:
Net free assets minus cash payment to complete work in process inventory
Total amount owed unsecured creditors
($182,165 - $11,000)/$332,500 = 51.6%

10 - 16

$ 60,000
7,000
380,000
(361,500)
150,335
$235,835


To download more slides, ebook, solutions and test bank, visit

Problem 10-4
BRAN COMPANY
Jim Brown, Trustee
Reconciliation and Liquidation Account
June 30, 2009 to December 31, 2009
Assets to be Realized
Receivables (old)
Less: Allowance for Uncollectibles
Inventory
Plant and Equipment
Less: Accumulated Depreciation

$ 45,000
6,000
215,000
70,000

Assets Acquired
Receivables (new)
Supplementary Charges

Purchases
Operating Expenses
Trustee Expenses
Loss on Sale of Equipment
Liabilities Liquidated
Accounts Payable (old)
Accounts Payable (new)
Liabilities Not Liquidated
Accounts Payable (old)
Accounts Payable (new)
Net Gain (1)

Assets Realized
Receivables (old)
$ 39,000 Receivables (new)
104,000 Plant and Equipment
145,000 Assets Not Realized
Receivables (new)
Less: Allowance for Uncollectibles
Inventory
100,000 Plant and Equipment *
Less: Accumulated Depreciation
35,000 Supplementary Credits
47,000 Sales
2,000 Gain on Sale of Land
12,000
Liabilities to be Liquidated
Accounts Payable (old)
110,000
30,000 Liabilities Incurred

Accounts Payable (new)
35,000
5,000
3,000
$667,000

* ($215,000 - $14,000 - $50,000) = $151,000

10 - 17

$ 38,000
85,000
39,000

$ 15,000
2,000
151,000
55,000

13,000
75,000
96,000

130,000
11,000

145,000

35,000

$667,000


To download more slides, ebook, solutions and test bank, visit

Problem 10-4 (continued)

Balance June 30
Sales
Accounts Receivable (old)
Accounts Receivable (new)
Sale of Land and Equipment
Balance 12/31
(1)

Cash
15,000 Accounts Payable (old)
30,000 Accounts Payable (new)
38,000 Operating Expenses
85,000 Trustee Expenses
38,000
17,000

Proof of Gain:
Sales
Cost of Sales ($104,000 + $35,000 - $75,000)
Operating Expenses
Trustee Expenses
Bad Debts Expense
Depreciation Expense

Gain on Sale of Land
Loss on Sale of Equipment
Net Gain

10 - 18

$ 130,000
(64,000)
(47,000)
(2,000)
(3,000)
(10,000)
11,000
(12,000)
$ 3,000

110,000
30,000
47,000
2,000


To download more slides, ebook, solutions and test bank, visit

Problem 10-5
Part A

Trustee’s Books
Cash
Accounts Receivable (old)

Inventory
Property and Equipment
Allowance for Uncollectibles (old)
Accumulated Depreciation
Plum Company – in Receivership ($252,750 - $3,750 - $36,825)
To record the receipt of Plum Company’s assets.

4,500
15,000
142,650
90,600
3,750
36,825
212,175

Cash
Accounts Receivable (new)
Sales
To record merchandise sales.

78,000
75,000
153,000

Cash

75,750
11,250
64,500

Accounts Receivable (old)
Accounts Receivable (new)
To record collection of accounts receivable.
Operating Expenses
Trustee Expenses
Cash
To record cash expenses.

11,850
3,000
14,850

Bad Debt Expense
Depreciation Expense
Allowance for Uncollectibles (new)
Accumulated Depreciation
To record adjustment for bad debts and depreciation.

2,250
5,250
2,250
5,250

Allowance for Uncollectibles (old)
Accounts Receivable (old) ($15,000 – $11,250)
To write off uncollectible accounts.

3,750
3,750

Plum Company – in Receivership
Cash
To record payment of old accounts payable.
Cash
Accumulated Depreciation ($36,825 + $5,250)
Loss on Sale of Equipment
Property and Equipment
To record the sale of property and equipment.

10 - 19

143,175
143,175

43,500
42,075
5,025
90,600


To download more slides, ebook, solutions and test bank, visit

Problem 10-5 (continued)
Sales
Plum Company – in Receivership
Inventory
Operating Expenses
Trustee Expenses
Bad Debt Expense
Depreciation Expense

Loss on Sale of Equipment
To close income statement accounts.

153,000
17,025
142,650
11,850
3,000
2,250
5,250
5,025

Plum Company Books
Allowance for Uncollectibles
Accumulated Depreciation
P. Smith, Trustee
Cash
Accounts Receivable
Inventory
Property and Equipment
To record the transfer of assets to P. Smith.
Accounts Payable
P. Smith, Trustee
To record the payment of accounts payable by P. Smith.
Retained Earnings
P. Smith, Trustee
To record operating effects reported by P. Smith.

10 - 20

3,750
36,825
212,175
4,500
15,000
142,650
90,600

143,175
143,175

17,025
17,025


To download more slides, ebook, solutions and test bank, visit


To download more slides, ebook, solutions and test bank, visit

Problem 10-5 (continued)
Part B

PLUM COMPANY – IN RECEVERSHIP
Combining Workpaper
For Five Months Ending October 31, 2009
Trial Balance
PLUM
Trustee
Company

Adjustments and
Eliminations
Dr.
Cr.

Combined
Income
Balance
Statement
Sheet

Debits
Cash *
Accounts Receivable (new)
Inventory
Operating Expenses
Trustee Expense
Bad Debt Expense
Depreciation Expense
Cost of Goods Sold
Loss on Sale of Equipment
P Smith, Trustee
Total Debits

43,725
10,500
142,650
11,850
3,000

2,250
5,250

43,725
10,500
(1)

(1)

142,650
11,850
3,000
2,250
5,250
142,650
5,025

142,650

5,025
69,000
$ 224,250 $ 69,000

(2)

69,000
$ 170,025

$ 54,225

Credits
Allowance for Uncollectibles: (New)
Capital Stock
Retained Earnings (Deficit)
Sales
Plum Company-in Receivership
Total Credits
Net Loss

2,250

2,250
135,000
(66,000)

135,000
(66,000)
153,000
(2)
69,000
69,000
$ 224,250 $ 69,000
$211,650

* $4,500 + $78,000 + $75,750 - $14,850 - $143,175 + $43,500
(1) To adjust inventory and set up cost of goods sold.
(2) To eliminate reciprocal accounts.

10 - 22

153,000
$211,650

153,000
17,025
$ 170,025

(17,025)
$ 54,225


To download more slides, ebook, solutions and test bank, visit

Problem 10-6
PLUM COMPANY
P. Smith, Trustee
Realization and Liquidation Account
June 1, 2009 to October 31, 2009
Assets to be Realized
Accounts Receivable (old)
Less: Allowance for Uncollectibles
Inventory
Plant and Equipment
Less: Accumulated Depreciation

$15,000
3,750
90,600
36,825

Assets Acquired
Accounts Receivable (new)
Supplementary Charges
Operating Expenses
Trustee Expense
Loss on Sale of Equipment *

Assets Realized
Accounts Receivable (old)
$ 11,250 Accounts Receivable (new)
142,650 Property and Equipment
Less: Accumulated Depreciation
53,775
Assets Not Realized
Accounts Receivable (new)
Less: Allowance for Uncollectibles
75,000
Supplementary Credits
11,850 Sales
3,000
5,025 Liabilities to be Liquidated
Accounts Payable

Liabilities Liquidated
Accounts Payable

143,175 Net Loss
$ 445,725

Cash

4,500 Operating Expenses
78,000 Trustee Expense
75,750 Accounts Payable
43,500
43,725

10 - 23

$90,600
42,075

48,525

10,500
2,250

8,250

153,000

143,175
17,025
$ 445,725

* ($90,600 - $42,075) - $43,500 = $5,025

Opening Amount
Sales
Accounts Receivable
Sale of Land and Equipment

Balance 10/31

$ 11,250
64,500

11,850
3,000
143,175


To download more slides, ebook, solutions and test bank, visit

Problem 10-7
MINER COMPANY
Statement of Affairs
May 31, 2009
Book
Value

Assets
Assets Pledged with Fully Secured Creditors:
$ 50,000 Notes Receivable
$39,800
1,200 Accrued Interest Rec.
1,000 $ 40,800

119,000

13,200

6,000
61,000
60,000
1,100
8,500

Notes Payable
Accrued Interest Pay.

40,000
800

Building
Note Payable
Accrued Interest Pay.

20,000
800

Realizable
Value

40,800
75,000
20,800

$ 54,200

Assets Pledged with Partially Secured Creditors:
Equipment

4,200
Note Payable
10,000
Free Assets
Cash
Accounts Receivable
Inventory
Prepaid Insurance
Goodwill
Total Net Realizable Value
Liabilities having Priority – Wages
Taxes
Net Free Assets

6,000
50,000
30,000
400
- 0 140,600
6,000
2,400

Estimated Deficiency to Unsecured Creditors
$ 320,000

10 - 24

8,400
132,200
53,600

$ 185,800


To download more slides, ebook, solutions and test bank, visit

Problem 10-7 (continued)

Book
Value

Equities
Liabilities Having Priority:
$ 6,000
Accrued Wages
2,400
Taxes Payable

60,000
1,600

Fully Secured Creditors:
Notes Payable
Accrued Interest Payable

Partially Secured Creditors:
10,000 Note Payable
Equipment

Unsecured
$ 6,000

2,400

$ 8,400

60,000
1,600

61,600

10,000
4,200

Unsecured Creditors:
170,000
Accounts Payable
10,000
Notes Payable

110,000
( 50,000)
$ 320,000

Estimated Losses:
Accounts Receivable
Notes Receivable
Inventory
Buildings
Equipment
Prepaid Insurance
Goodwill

$

5,800

170,000
10,000

Stockholders’ Equity
Common Stock
Retained Earnings (Deficit)
$ 185,800

Deficiency Account
May 31, 2009
Estimated Gains:
$ 11,000 Common Stock
10,400 Retained Earnings
30,000 Estimated Deficiency to
44,000
Unsecured Creditors
9,000
700
8,500
$113,600

$ 110,000
(50,000)
53,600

$ 113,600

Estimated final dividend rate to unsecured creditors is: $132,200/$185,800 = 71.15%

10 - 25