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Consider Failures Galore Inc using the following tables: Balance Sheet, Failures Galore, Inc.* Assets Liabilities and Equity Current assets $ 7,400,000 Accounts payable $ 2,000,000

Consider Failures Galore Inc using the following tables:

Balance Sheet, Failures Galore, Inc.*
Assets Liabilities and Equity
Current assets $ 7,400,000 Accounts payable $ 2,000,000
Fixed assets, net 6,500,000 Bank notes payable 2,000,000
Accrued wages 400,000
Accrued taxes 500,000
Mortgage bonds 2,000,000
Debentures 2,000,000
Subordinated debentures 2,000,000
Preferred stock 1,500,000
Common equity 1,500,000
Total assets $ 13,900,000 Liabilities and equity $ 13,900,000
*The subordinated debentures are subordinate to the bank notes payable. Assume that all the accrued wages can be paid out of the liquidation proceeds.

Distribution of the Proceeds from the Liquidation of Failures Galore, Inc.
Total liquidation proceeds $6,500,000
1. Bankruptcy administration expenses $700,000
2. Wages owed to employees 400,000
3. Taxes owed to governments 500,000
Total priority claims $1,600,000
Funds available for claims of creditors $4,900,000
4. Payment to mortgage bondholders (proceeds from sale of secured assets) 1,500,000
Funds available for claims of general and unsecured creditors $3,400,000

Settlement percent for general and unsecured creditors 3400000/8500000 = 40%

=
=
= 40%

Settlement, Settlement,
40% of Claim 40% of Claim
(Before Subordination (After Subordination
Total Claim Adjustment) Adjustment)
Accounts payable $ 2,000,000 $ 800,000 $ 800,000
Bank notes payable 2,000,000 800,000 1,600,000
Mortgage bonds 500,000 200,000 200,000
Debentures 2,000,000 800,000 800,000
Subordinated debentures 2,000,000 800,000 0
$ 8,500,000 $ 3,400,000 $ 3,400,000
Funds available for preferred and common stockholders $0

If total liquidation proceeds are $6.075 million, what is the distribution of these proceeds among the various creditors of Failures Galore? Round your answers to the nearest dollar.

Settlement,
(After Subordination Adjustment)
Accounts payable $
Bank notes payable $
Mortgage bonds $
Debentures $
Subordinated debentures $
$

Funds available for preferred and common stockholders: $

If total liquidation proceeds are $6.925 million, what is the distribution of these proceeds among the various creditors of Failures Galore? Round your answers to the nearest dollar.

Settlement,
(After Subordination Adjustment)
Accounts payable $
Bank notes payable $
Mortgage bonds $
Debentures $
Subordinated debentures $
$

Funds available for preferred and common stockholders: $

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