Question
[6.] At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown below (in
[6.] At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown below (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $340,000, while the current assets were sold for another $160,000. Thus, the total proceeds from the liquidation sale were $500,000. The trustee's costs 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.
Balance Sheet (Thousands of Dollars)
Current assets $400 Account payable $50 Net fixed assets $600 Accrued taxes $40
Accrued wages $30
Notes payable $180
Total current liabilities $300
First-mortgage bonds[a] $300
Second-mortgage bonds[a] $200
Debentures $200
Subordinated debentures[b] $100
Common stock $50
Retained earnings (150)
Total assets $1,000 Total liabilities & equity $1,000
Notes:
[a] All fixed assets are pledged as collateral to the mortgage bonds.
[b] Subordinated to notes payable only.
A. How much will McDaniel's shareholders receive from the liquidation? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answer to the nearest dollar. If no entry is required, enter "0".
$ ____________
B. How much will the first mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".
The first mortgage bondholders will receive $_____________from collateralized assets that-[Is or Is Not]??? equal to their full claim. Therefore, the first mortgage holders have $______________in unsatisfied claims.
C. How much will the second mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".
The second mortgage bondholders will receive $___________from collateralized assets that[Is or Is Not]??? equal to their full claim. Therefore, the second mortgage holders have $____________in unsatisfied claims.
D. How much will the other priority claimants (in addition to the mortgage bondholders) receive from the liquidation? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar.
Remaining primary claimants Amount
Trustee's expenses $____________
Workers' wages due $____________
Governments' taxes due $____________
Total $____________
E. How much will the remaining general creditors receive from the distribution before subordination adjustment? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar.
Account Amount Received before
subordination adjustment
Accounts payable $ ____________
Notes payable $____________
Second mortgage bonds $ ____________
Debentures $____________
Subordinated debentures $____________
Total $____________
How much will the remaining general creditors receive after subordination? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".
Account Amount Received after
subordination adjustment
Accounts payable $____________
Notes payable $____________
Second mortgage bonds $____________
Debentures $____________
Subordinated debentures $____________
Total $____________
How much in total will the second mortgage holders receive (include the amount received from collateral)? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answer to the nearest dollar.
$_____________
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started