Question
A company enters Chapter 7 bankruptcy proceedings. Its balance sheet, prepared using GAAP for a company with continuing operations, is as follows: Cash $ 15,000
A company enters Chapter 7 bankruptcy proceedings. Its balance sheet, prepared using GAAP for a company with continuing operations, is as follows:
Cash
$ 15,000
Accounts payable
$ 90,000
Inventories
100,000
Loans payable
300,000
Plant and equipment, net
250,000
Equity (deficit)
(25,000)
Total
$365,000
Total
$365,000
The plant and equipment is security for one of the loans, with a balance of $130,000. The other liabilities are unsecured. The following transactions occur:
Inventories with a book value of $60,000 were sold for $40,000.
*
The plant and equipment was sold for $200,000. The loan secured by the plant and equipment was paid.
*
Wages and administrative expenses of $10,000 were accrued.
*
An initial payment of 40 cents per dollar of indebtedness was paid to the unsecured creditors.
The statement of realization and liquidation reports "loss on realization" of:
A.$50,000B.$80,000C.$70,000D.$30,000
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