Question

On May 1, 2020, Rolly Industries begins liquidation activities and adopts the liquidation basis of accounting. The book value of its reported assets total $700,000, including $10,000 in cash, and the book value of its liabilities, consisting of bank loans, total $600,000. Expected proceeds from reported assets other than cash are:

• Receivables, $50,000
• Inventories, $150,000
• Plant and equipment, $300,000

Previously unreported identifiable intangible assets have a fair value of $80,000. Expected costs of liquidating assets are $20,000, and negotiations are in process to reduce Rolly’s bank loans by 25%.

During the two months ending June 30, 2020, the following transactions occur:

• Receivables of $48,000 are collected and the rest are determined to be uncollectible.
• Inventories are sold for $100,000.
• Plant and equipment is sold for $125,000.
• The identifiable intangible assets are sold for $72,000.
• Liquidation costs of $10,000 are paid.
• Bank loans of $325,000 are paid, and creditors holding $275,000 of loans agree to accept $250,000 as full payment.
• Fair values of remaining assets other than cash are:
• Inventories, $55,000
• Plant and equipment, $185,000
• Estimated future liquidation costs are $6,000.

1.            On the statement of changes in net assets in liquidation for the two months ending June 30, 2020, the remeasurement gain or loss on accrued liquidation costs is:

a.            $4,000 gain

b.            $4,000 loss

c.             $10,000 gain

d.            $10,000 loss

2.            On the statement of changes in net assets in liquidation for the two months ending June 30, 2020, the remeasurement gain or loss on bank loans is:

a.            $300,000 loss

b.            $25,000 gain

c.             $25,000 loss

d.            $50,000 gain

3.            On the statement of changes in net assets in liquidation for the two months ending June 30, 2020, the remeasurement gain or loss on plant and equipment is:

a.            $15,000 loss

b.            $125,000 gain

c.             $75,000 loss

d.            $10,000 gain

Answer 1

DATE DIDI Realisabled Net Assets 3 Thswer On Receivables Inventories Plant & Equipment Intangible Assets Amount $48000 $ 100 DOO 125000 72000 345000 + Fair values of assets remaining, Cash Balance Inventories Plant & Equipment Total Bank Loans paid 10,000 55000 185000 $385000 595000 (325000 1 Sundry Creditors Settled Liquidation Costs (250,000) (10,000) $ 10, OVO Estimated future Liq. Costs (6000) $4000 1 Ans) option - a) $4000 Gain On Bank Loan Liability to be cleaned = $600000 Liability Cleared $325600 +$ 250,000 - $ 5 75000 Hence Gain = $25000 2 Ans) & option - b) $25000 Gain

DATE DATE III 3 On Plant and Equipment: Expected Proceeds from above = 300000 - Plant & Eq sold = ($1295000) - Plant & Eq; available = ($185,000 - at fair value $10, ovo Hence, on Remeasurement of plant & Eq. gain of $10,000, 3 Ans) = Option - d) $10,000 gain