Problem 6-3

Corporations
in Financial
Difficulty
Rizal Corporation is
experiencing
difficulty in paying
its bills and is
considering filing
for bankruptcy.
Current data show:

Required: Prepare
 Assets Book Value Expected Realizable
Value
Cash 4,000 4,000
Accounts Receivable 40,000 30,000
Inventory Materials 36,000 27,000
Inventory Finished Goods 50,000 55,000
Prepaid Expenses 1,000 0
Land 10,000 42,000
Building 70,000 60,000
Trucks 20,000 6,000
Equipment 45,000 25,000
Intangibles 16,000 0
292,000
 Liabilities Book Value Secured by
Accounts Payable 77,000
Bank Loan 25,000 80% of receivables
Wages Payable 12,000
Taxes Payable 8,000
Truck Loan 5,000 Truck with 12,000 BV & 3,500
ERV
Mortgage payable 43,000 Land and Building
Loan Payable 50,000 Finish Goods
Stockholder Loan 110,000 Not subordinated to other debt
Stockholder’s Equity (38,000)
292, 000
Statemen
t of
Affairs
Book Value Assets Estimated Free Assets
Realizable
Value
Pledge with fully secured creditors
80,000 Land and Building 102,000
Less: Mortgage payable 43,000 59,000
50,000 Inventory Finished Goods 55,000
Less: Loan Payable 50,000 5,000
Pledged with partially secured creditors
32, 000 Accounts Receivable 24,000
12,000 Truck 3,500
Total: 27, 500
Free Assets
4,000 Cash 4,000
Book Value Assets Estimated Free Assets
Realizable
Value
8,000 Accounts Receivable (20%) 6,000
36,000 Inventory Materials 27,000
1,000 Prepaid Expense 0
8,000 Trucks 2,500
45,000 Equipment 25,000
16,000 Intangible Assets 0 64,500
Total Free Assets: 128, 500
Less: Unsecured Liabilities with priority (20,000)
Net Free Assets 108, 500
Estimated Deficiency 81, 000
292,000 Total: 189, 500
Book Value Liabilities and Stockholder’s Equity Estimated Free Assets
Realizable
Value
Liabilities with Priority
12, 000 Wages Payable 12,000
8,000 Taxes Payable 8,000
Total: 20,000
Fully Secured creditors
43, 000 Mortgage Payable 43,000
50,000 Loan Payable 50,0000
Total: 93,000
Partially Secured Creditors
25,000 Bank Loan 25,000
Less: Accounts receivable (80%) 24,000 1,000
Book Value Liabilities and Stockholder’s Equity Estimated Free Assets
Realizable
Value
5,000 Truck Loan 5,000
Less: Trucks 3,500 1,500
Unsecured creditors
77,000 Accounts Payable 77,000
110,000 Stockholder Loan 110,000 187,000

(38,000) Stockholder’s Equity -

292,000 189,500
Thank you