#3.(12 points) Firm ABC had the following balance sheet (in thousands of dollars) when it filed for bankruptcy. The court determined that the only recourse was liquidation for the firm under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400.000, while the current assets were sold for $200,000. The cost related to the works done by the trustee amounted to $50,000, no single worker was due more than the maximum allowable wages per worker, and there were no unfunded pension plan liabilities. Current assets Net fixed assets $500 700 Accounts payable Accrued taxes Accrued wages Notes payable Total current liabilities First-mortgage bonds a Second-mortgage bonds Debentures Subordinated debentures Common stock Retained earings Total claims $50 45 35 180 $310 350 200 200 120 170 (150) $1,200 Total assets $1,200 b All fixed assets are pledged as collateral to the mortgage bonds. Subordinated to notes payable only. (a) How much will ABC's shareholders receive from the liquidation? (3 points) (6) How much will the mortgage bondholders receive? (3 points) () Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation? (3 points) (d) Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? What is the effect of adjusting for subordination? (3 points) #3.(12 points) Firm ABC had the following balance sheet (in thousands of dollars) when it filed for bankruptcy. The court determined that the only recourse was liquidation for the firm under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400.000, while the current assets were sold for $200,000. The cost related to the works done by the trustee amounted to $50,000, no single worker was due more than the maximum allowable wages per worker, and there were no unfunded pension plan liabilities. Current assets Net fixed assets $500 700 Accounts payable Accrued taxes Accrued wages Notes payable Total current liabilities First-mortgage bonds a Second-mortgage bonds Debentures Subordinated debentures Common stock Retained earings Total claims $50 45 35 180 $310 350 200 200 120 170 (150) $1,200 Total assets $1,200 b All fixed assets are pledged as collateral to the mortgage bonds. Subordinated to notes payable only. (a) How much will ABC's shareholders receive from the liquidation? (3 points) (6) How much will the mortgage bondholders receive? (3 points) () Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation? (3 points) (d) Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? What is the effect of adjusting for subordination? (3 points)
