Kimber Co. is in the process of liquidating and going out of business. The firm's accountant has provided the following balance sheet and additional information:

It is estimated that all but 12% of the accounts receivable can be collected, and that the merchandise inventory can be disposed of in a liquidation sale for 85% of its cost. Buildings and equipment can be sold at $40,000 above book value (the difference between original cost and accumulated depreciation shown on the balance sheet), and the land can be sold at its current appraisal value of $65,000. In addition to the liabilities included in the balance sheet, $2,400 is owed to employees for their work since the last pay period, and interest of $5,250 has accrued on notes payable and long-term debt.

Required:
a. Calculate the amount of cash that will be available to the stockholders if the accounts receivable are collected, the other assets are sold as described, and all liabilities and other claims are paid in full.
b. Briefly explain why the amount of cash available to stockholders (computed in part a) is different from the amount of total owners' equity shown in the balancesheet.

Transcribed Image Text:

Assets 18,400 62,600 114,700 Cash. Merchandise inventory. Total current assets .in-_.n Land Buildings & equipment. $195,700 $51,000 343,000 (195,000) Total land, buildings, & equipment 199,000 $394,700 Total assets Liabilities and Owners' Equity Accounts payable Notes payable 46,700 58,500 $106,200 64,800 Total current iabilitias.. Long-term debt. Owners' Equity Common stock, no par- Retained earnings $110,000 114,700 Total owners' equity Total liabilities and owners' equity .. 224,700 $394,700