During the month ended July 31, 1918, delivery equipment having a book value of $3,300 was sold for $3,000 in cash; accounts receivable in the amount of $4,000 were collected and $980 in bad debts were charged off. A sale of the land and buildings granted the use of the premises during the liquidation. The land was sold for $17,000 and the buildings for $31,500, the mortgage (with accrued interest to July 3) being assumed by the purchaser as part payment. The partially secured creditors accepted the F. D. Co. Stock held as collateral at 90% of its book value and the balance of their claim was paid in cash. Incidental expenses of $350 and the liquidating fees were paid in cash. From the goods in the inventories there were sold bags of a book value of $1,200 for $1,120, and trunks, book value $2,530, for $2,280. There was paid to holders of unsecured notes payable $2,000 and interest of $100. The accrued labor was paid and $10,000 in unsecured accounts payable were settled. The balance of the cash was applied in paying off partners’ loans and capital as a liquidating dividend.
The next month the delivery equipment was sold for $1,850. Furniture and fixtures having a book value of $2,100 were sold for $1,700. Of the I O U’s $70 was collected; the balance proved worthless. The notes receivable as collateral in the hands of fully secured creditors were settled in full and our equity was paid to us in cash, also accrued interest of $120. Bags having a book value of $2,500 were sold for $2,100, and trunks at book $3,700 brought $3,200. Mason accepted $4,200 in settlement of $5,000 in accounts receivable.
Legal fees of $150; sundry expenses of $460; all the existing debts and the liquidating fees were paid in cash. The cash remaining was distributed as a liquidating dividend.
In the course of the last month the remaining furniture and fixtures were sold for $1,900. The good-will went to the same purchaser for $1,000 additional.
The prepaid insurance is without value. Office supplies yielded $20. The notes receivable, together with the balance of accrued interest were collected in full. There was lost in bad debts $740. The bags were sold at a 10% reduction. The partners divided the trunks among themselves one-third to each, taking them at book value.
Sundry expenses of $340 and the liquidating fees were paid in cash, after which the cash on hand was distributed.
Note: Converted value means the value at which any asset is disposed of, whether for cash or in the cancellation of any claim.
21. Show on the books of the firm of Howard, Mason & Co. all the entries necessary to carry into effect the liquidation of the business under the conditions set forth in the foregoing problem.
22. The firm of Norton & Brown decided to liquidate at a time when their condition, as shown by the balance sheet given below, was still solvent.
Balance Sheet, March 31, 1918