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On May 1, 2020, Rolly Industries begins liquidation activities and adopts the liquidation basis of accounting. The book...

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 net assets in liquidation at June 30, 2020, total assets are:

a.            $240,000

b.            $266,000

c.             $260,000

d.            $250,000

2.        On the statement of net assets in liquidation at June 30, 2020, total liabilities are:

a.            $256,000

b.            $250,000

c.             $264,000

d.            $275,000

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Answer #1

(1) On the statement of net assets in liquidation at June 30, 2020, total assets are: (c) 260,000

valuation of asset is as follows:-

  • Inventories- $55,000
  • Plant and equipment-$185,000
  • cash- (10,000+48,000+100,000+125,000+72,000) - (325,000+10,000) = 20,000

Total asset= 55,000 + 1,85,000+ 20,000 = 260,000

(2)  On the statement of net assets in liquidation at June 30, 2020, total liabilities are: (a) 256,000

creditors= 250,000

Liquidation cost= 6,000

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