Reference no: EM132462270

Problem - On October 1, 2020, Drexel Inc. begins liquidation activities and adopts the liquidation basis of accounting. The book value of its assets totaled $500,000, including $5,000 in cash, and the book value of its liabilities totaled $490,000. Expected proceeds from reported assets other than cash at October 1, 2020 were: Receivables, $50,000; inventory, $120,000; and plant and equipment, $200,000. Expected costs of liquidating assets were $20,000.

During the three months ending December 31, 2020, the company collected $15,000 in receivables, sold inventory for $50,000, and paid liquidation costs of $6,000. Reported liabilities of $60,000 were paid. At December 31, 2020, estimated valuations on remaining assets, other than cash, and liabilities are as follows:

- Receivables, $30,000

- Inventory, $54,000

- Plant and equipment, $194,000

Newly identified unreported assets can be liquidated for an estimated $4,000. Expected remaining costs of liquidating assets are $15,000. A creditor holding a loan with a book value of $35,000 agrees to accept $20,000 as full payment.

Required -

a. Prepare a statement of changes in net assets in liquidation as of December 31, 2020.

b. Prepare a statement of net assets in liquidation as of December 31, 2020.