[Bankruptcy problem]

Assets Liabilities and Equity .

Cash $40,000 Accounts payable $100,000

Accounts receivable 300,000 Accrued wages 50,000

Secured bank loan 250,000

Unsecured bank loan 200,000

Inventory 400,000 Mortgage 250,000

Plant and equipment 260,000 Subordinated debentures 150,000

Common stock 100,000

Retained earnings (100,000)

Total assets $1,000,000 Liabilities and equity $1,000,000

The firm defaults and the only solution is a liquidate, so the question becomes how much each claimant receive.

A buyer is found for the receivables, which secure the bank loan, for $0.70 per $1.00.

The inventory can be sold for $0.60 on the $1.00.

The plant and equipment, which secures the mortgage, are sold for $200,000.

The payables are subordinated to the bank loan.

The subordinated debentures are subordinated to the mortgage.

Junior subordinated debt had previously been retired.

Court costs have been covered but pension costs are $20,000.

How much is available to pay general credits?

What are the amounts of each general creditors claims?

Accounts receivable

Accounts payable

Accrued wages

Secured bank loan

Unsecured bank loan

Mortgage

Subordinated debentures

Junior subordinated debentures

Common stock

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

Accounts receivable

Accounts payable

Accrued wages

Secured bank loan

Unsecured bank loan

Mortgage

Subordinated debentures

Junior subordinated debentures

Common stock

Would your previous answers be different if the subordinated debentures were not subordinated to the mortgage but subordinated to the unsecured bank loan?