Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 53

Calculate cash available upon liquidation of business Circle-Square, Ltd., is in the process of liquidating and going out of business. The firm’s balance sheet shows $22,800 in cash, accounts receivable of $114,200, inventory totaling $61,400, plant and equipment of $265,000, and total liabilities of $305,600. It is estimated that the inventory can be disposed of in a liquidation sale for 80% of its cost, all but 5% of the accounts receivable can be collected, and plant and equipment can be sold for $190,000.

Required:

Calculate the amount of cash that would be available to the owners if the accounts receivable are collected, the other assets are sold as described, and the liabilities are paid off in full.

Step 1 of 2

Calculate the amount of cash that would be available to the owners, if the accounts receivable are collected, the other assets are sold and the other liabilities are paid in full:

The cash that would be available to the owners, if the accounts receivable are collected, the other assets are sold and the other liabilities are paid in full should be calculated using the following steps:

(a) Record the cash balance available.

(b) Add the inventory liquidation value. It represents 80% of the inventory value.

(c) Add the accounts receivables collections. The collections are 95% of the accounts receivable.

(d) Determine the total cash available by adding the inventory liquidation value and the collection from accounts receivable to the cash balance available.

(e) Deduct the payment of liabilities from the total cash available to determine the cash available to owners.