Liquidation Basis of Accounting
Farmworth Company entered liquidation on March 1. The book value of its assets totaled $400,000, including $10,000 in cash, and the book value of its liabilities totaled $360,000. Expected proceeds from reported assets other than cash were:
Receivables, $30,000
Inventory, $70,000
Plant and equipment, $175,000
Expected costs of liquidating assets were $25,000.
During the three months ending June 1, the company collected $10,000 in receivables, sold inventory for $30,000, and paid liquidation costs of $12,000. Reported liabilities of $30,000 were paid. At the end of three months, estimated valuations on remaining assets and liabilities are as follows:
1. Expected proceeds from reported assets other than cash are:
• Receivables, $22,000
• Inventory, $20,000
• Plant and equipment, $160,000
2. Newly identified unreported assets can be liquidated for an estimated $8,000.
3. Expected costs of liquidating assets are $18,000.
4. A creditor holding a loan with a book value of $25,000 agrees to accept $15,000 as full payment.
Required
a. Prepare a statement of changes in net assets in liquidation as of June 1.
Use negative signs with your answers, when appropriate.
Farmworth Company
Statement of Changes in Net Assets in Liquidation
For the 3 Months Ending June 1
Net assets, March 1 Answer 1
(100,000)
Remeasurement adjustments on assets:
Receivables Answer 2
2,000
Inventory Answer 3
(20,000)
Plant and equipment Answer 4
(15,000)
Items previously not recognized Answer 5
8,000
Remeasurement of liabilities Answer 6
10,000
Adjustment for accrued liquidation costs Answer 7
(5,000)
Net assets, June 1 Answer 8
(120,000)
b. Prepare a statement of net assets in liquidation as of June 1.
Use a negative sign with your net assets answer, if appropriate.
Farmworth Company
Statement of Net Assets in Liquidation
June 1
Assets
Cash Answer 9
18,000
Receivables Answer 10
22,000
Inventory Answer 11
20,000
Plant and equipment Answer 12
160,000
Items not previously reported Answer 13
8,000
Total Assets Answer 14
220,000
Liabilities
Reported liabilities Answer 15
320,000
Accrued liquidation costs Answer 16
18,000
Total liabilities Answer 17
338,000
Net assets Answer 18
(118,000)