24.

Bankruptcy Calculations

Faced with an inability to meet its current debt payments, The Selbert Company entered bankruptcy on April 30, 2020. The appointed trustee will liquidate the company and pay the creditors in accordance with the provisions of the bankruptcy laws. Selberts balance sheet on April 30, 2020, following normal GAAP, shows the following:

THE SELBERT COMPANY Balance Sheet April 30, 2020
Assets			Liabilities and equity
Cash	$3,200		Accounts payable	$131,900
Accounts receivable	71,000		Loan payable to bank	60,000
Notes receivable	50,000		Notes payable to suppliers	83,900
Inventories	108,600		Accrued wages	94,700
Prepaid expenses	17,200		Accrued taxes	70,000
Land and buildings, net	172,000		Mortgage payable	195,000
Equipment, net	113,500		Common stock	100,000
Goodwill, net	28,000		Retained earnings	(172,000)
Total assets	$563,500		Total liabilities and equity	$563,500

Additional information:

1. The trustee estimates that 60 percent of the accounts receivable will be collected, and she has agreed to settle the notes receivable for $42,500. The notes receivable serve as collateral for the loan payable to the bank.

2. The inventories will likely be sold to a competitor, at 40 percent of book value.

3. Other than a $2,000 insurance refund, no recovery of prepaid items is expected.

4. Appraised at $300,000, the land and buildings are pledged as security on the mortgage.

5. The equipment is expected to be sold for $40,000.

6. The notes payable to the suppliers are unsecured.

7. Accrued wages do not exceed statutory limits per employee.

Required

Compute the following:

a. Estimated net loss on asset dispositions.

Do not use a negative sign with your answer.

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b. Amount of priority claims.

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c. Estimated payments to fully and partially secured creditors.

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d. Expected recovery percentage to unsecured creditors.

Round answer to one decimal place (ex: 0.2345 = 23.5%).

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