Bankruptcy problem

Assets Liabilities and Equity

Cash $20,000 Accounts payable $200,000

Accounts receivable 400,000 Accrued wages 60,000

Accrued pensions 40,000

Primary bank loan 150,000

Secondary bank loan 150,000

Inventory 280,000 Mortgage 270,000

Plant and equipment 300,000 Debentures 200,000

Common stock 30,000

Retained earnings (100,000)

The firm must be liquidated. How much each claimant receive?

A buyer is found for the receivables for $0.80 per $1.00.

The inventory secures the bank loans and can be sold for $200,000.

The plant and equipment, which secures the mortgage, are sold for $240,000.

Any unpaid mortgage is subordinated to both bank loans.

The secondary bank loan is subordinated to the primary bank loan.

Court costs and fees are $30,000.

How much is available to pay general credits?

What are the amounts of each general creditors claims?

Accounts receivable

Accounts payable

Accrued wages

Accrued pension

Primary bank loan

Secondary bank loan

Mortgage

Debentures

Common stock

Retained earnings

If the absolute order of claims is maintained, how much do the holders of each general creditors receive?

Accounts receivable

Accounts payable

Accrued wages

Accrued pension

Primary bank loan

Secondary bank loan

Mortgage

Debentures

Common stock

Retained earnings

Would your previous answers be different if the debentures were subordinated to the mortgage and the mortgage was not subordinated to any unpaid bank loans? Explain your answer.