Statement of Affairs
16. C. C. Carter and A. D. Walker were unable to meet their obligations. From the books of the firm and additional information you ascertained the following:
| Real Estate (estimated to produce $18,000; | |
| subject to a mortgage of $12,000) | $20,000.00 |
| Notes Receivable | 6,000.00 |
| Expense | 7,820.00 |
| Furniture and Fixtures (estimated to produce $2,700) | 3,500.00 |
| D. L. & W. Stock (estimated to produce $12,000 | |
| pledged with fully secured creditors) | 14,000.00 |
| Horse and Wagon (estimated to produce $500) | 700.00 |
| Other Securities | |
| (pledged with partially secured creditors) | 3,000.00 |
| Accounts Receivable (good $3,000; doubtful $1,800, | |
| but estimated to produce $1,440; bad $600) | 5,400.00 |
| Notes Payable | 2,000.00 |
| Creditors, Unsecured | 18,000.00 |
| Creditors, Partially Secured | 8,000.00 |
| Creditors, Fully Secured | 10,000.00 |
| Wages, Salaries and Taxes, preferred by law | 560.00 |
| Carter, Capital | 15,000.00 |
| Walker, Capital | 5,000.00 |
| Carter, Drawings (debit) | 3,050.00 |
| Walker, Drawings (debit) | 1,000.00 |
| Cash | 870.00 |
| Sundry Losses | 5,220.00 |
Prepare statement of affairs and deficiency account as of September 30, 1918.
17. On December 1, 1918, the following particulars are furnished of the position of John Mapleton, insolvent: factory equipment cost $15,000, estimated to realize $10,000; stock of finished goods $10,000, estimated worth $7,500; material and supplies $2,500, estimated worth $1,000; furniture and fixtures $900, estimated worth $200; investments valued at $25,275, of which $15,000 is held by bankers as security for loan of $12,000; accounts receivable $6,250, of which $2,500 are good, $1,250 bad, and $2,500 estimated to realize $1,500; cash $575, of which $25 represents petty expense items not charged up, and $50 an I O U of a former employee which is worthless; accounts payable $28,500; bills payable $25,000, of which $12,000 is due bankers; wages due $500; rent due and past due $1,000; capital on January 1, 1918, as shown by the books, $15,000; loss by sale of investment May 1, 1918, $5,000; loss in trading account January 1, 1918, to December 1, 1918, $3,500; drawings charged personal account of John Mapleton $1,000.
Make up a statement of affairs and a deficiency account as on December 1, 1918.
18. John Thompson exhibits the following balance sheet of his business dated June 30, 1918:
| Cash | $ 750 | Sundry creditors | $6,000 |
| Book debts | 9,500 | Bills Payable | 7,500 |
| Stock on hand | 6,500 | Bank (overdraft) | 3,000 |
| Fixtures, etc. | 1,750 | Balance | 2,000 |
| Total | $18,500 | Total | $18,500 |
On questioning Thompson it was found that he had omitted the following from his balance sheet: $250 owing for rent; $75 owing for taxes; $2,500 borrowed at 5% from his wife three years ago, no payment having been made on account of either principal or interest; a draft for $500 accepted by a firm without consideration, falling due in 30 days. His private and household debts amounted to $600.
The item entered on his balance sheet as cash included his personal I O U’s for $600.
Of the book debts about $3,500 might be considered bad and the rest good. The stock was good except $1,000, which would not produce more than $100. The fixtures, if sold, would not realize more than $250. The only other assets were household furniture worth about $1,250 and residence valued at $7,500, subject to a first mortgage for $5,000 at 4%, and also a second mortgage held by his bank as security for overdraft.
Prepare a statement of affairs and deficiency account.
19. June 30, 1918, as a result of careless management, the firm of Howard, Mason & Co. finds itself in a critical financial condition.
The following trial balance shows the accounts as they appear on the books after closing the ledger.
Post-Closing Trial Balance, June 30, 1918
| Land | $ 10,000.00 | |
| Buildings | 42,000.00 | |
| Reserve for Depreciation, Buildings | $ 6,000.00 | |
| Delivery Equipment | 7,000.00 | |
| Reserve for Depreciation, Equipment | 1,500.00 | |
| Furniture and Fixtures | 4,200.00 | |
| Good-Will | 5,000.00 | |
| Cash | 2,316.00 | |
| F. D. Co. Stock | 4,000.00 | |
| Accounts Receivable | 16,000.00 | |
| Reserve for Bad Debts | 1,996.00 | |
| Notes Receivable | 9,400.00 | |
| Notes Receivable Discounted | 3,800.00 | |
| Merchandise Inventory, Bags, June 30, 1918. | 4,780.00 | |
| Merchandise Inventory, Trunks, June 30, 1918 | 8,910.00 | |
| Mortgage Payable | 25,000.00 | |
| Accounts Payable | 21,000.00 | |
| Notes Payable | 12,000.00 | |
| Thomas J. Howard, Loan | 6,000.00 | |
| Thomas J. Howard, Capital | 15,000.00 | |
| Thomas J. Howard, Drawing | 1,700.00 | |
| Joseph Mason, Loan | 4,000.00 | |
| Joseph Mason, Capital | 9,000.00 | |
| Joseph Mason, Drawing | 1,000.00 | |
| John H. Bartlett, Loan | 3,000.00 | |
| John H. Bartlett, Capital | 6,000.00 | |
| Accrued Interest, Mortgage | 1,500.00 | |
| Accrued Interest, Notes Payable | 300.00 | |
| Accrued Interest, Notes Receivable | 150.00 | |
| Prepaid Insurance | 60.00 | |
| Taxes Accrued | 300.00 | |
| Accrued Labor | 200.00 | |
| Miscellaneous Office Supplies | 80.00 | |
| $116,596.00 | $116,596.00 |
There is dissatisfaction among the partners and they finally agree to dissolve partnership. Preparatory to dissolving they appraise the assets and rank the liabilities on a liquidating basis.
It has been found that the buildings had been damaged by fire to the extent of $3,000 but that no adjustment had been made in the buildings account. The delivery equipment is estimated to produce $4,800. Furniture and fixtures have a value of $3,600. The land has increased in value $6,000.
Of the notes payable, $5,000 has been partially secured by all the F. D. Co. Stock, which is expected to yield 80% of its book value. Collateral in the form of good notes receivable of $4,500 has been given to creditors whose claims amount to $3,700.
Among the cash there are I O U’s in the amount of $180 that cannot be considered as worth more than $50. The accounts receivable are classified as worthless $3,000; doubtful $2,000, which are expected to produce $1,400; the balance are good. Both inventories of merchandise were reduced by 10%.
The accrued taxes and labor are claims preferred by law. Prepaid insurance, miscellaneous office supplies, and good-will were assumed to have no value in case of liquidation.
From the information at hand:
(a) Prepare a statement of affairs showing the financial condition of the partnership in anticipation of liquidation.
(b) Prepare a statement accounting for the impairment of capital.