Kamy Corp. is in liquidation under Chapter 7 of the Federal Bankruptcy Code. The bankruptcy trustee has established a new set of books for the bankruptcy estate. After assuming custody of the estate, the trustee discovered an unrecorded invoice of $1,000 for machinery repairs performed before the bankruptcy filing. In addition, a truck with a carrying amount of $20,000 was sold for $12,000 cash. This truck was bought and paid for in the year before the bankruptcy.

What amount should be debited to estate equity as a result of these transactions?

a. $0

b. $8,000

c. $9,000

d. $1,000

Question

Business

Alayna Roman

21 September, 06:43

Kamy Corp. is in liquidation under Chapter 7 of the Federal Bankruptcy Code. The bankruptcy trustee has established a new set of books for the bankruptcy estate. After assuming custody of the estate, the trustee discovered an unrecorded invoice of $1,000 for machinery repairs performed before the bankruptcy filing. In addition, a truck with a carrying amount of $20,000 was sold for $12,000 cash. This truck was bought and paid for in the year before the bankruptcy.

What amount should be debited to estate equity as a result of these transactions?

a. $0

b. $8,000

c. $9,000

d. $1,000

+3

Answers (1)

Know the Answer?

Madilynn Herman · Answer 1

C) $9,000

Explanation:

Debits to the equity state represent additional expenses or losses that were not previously recorded.

gain/loss = cash - carrying value of truck = $12,000 - $20,000 = - $8,000 or $8,000 loss additional repair costs = $1,000 (machinery repairs)

Total unrecorded losses and expenses = $8,000 + $1,000 = $9,000