Question
Faced with an inability to meet its current debt payments, The Selbert Company entered bankruptcy on April 30, 2020. The appointed trustee will liquidate the
Faced with an inability to meet its current debt payments, The Selbert Company entered bankruptcy on April 30, 2020. The appointed trustee will liquidate the company and pay the creditors in accordance with the provisions of the bankruptcy laws. Selberts balance sheet on April 30, 2020, following normal GAAP, shows the following:
THE SELBERT COMPANY Balance Sheet April 30, 2020 | ||||
---|---|---|---|---|
Assets | Liabilities and equity | |||
Cash | $3,200 | Accounts payable | $131,900 | |
Accounts receivable | 71,000 | Loan payable to bank | 60,000 | |
Notes receivable | 50,000 | Notes payable to suppliers | 83,900 | |
Inventories | 108,600 | Accrued wages | 94,700 | |
Prepaid expenses | 17,200 | Accrued taxes | 70,000 | |
Land and buildings, net | 172,000 | Mortgage payable | 195,000 | |
Equipment, net | 113,500 | Common stock | 100,000 | |
Goodwill, net | 28,000 | Retained earnings | (172,000) | |
Total assets | $563,500 | Total liabilities and equity | $563,500 |
Additional information:
1. The trustee estimates that 60 percent of the accounts receivable will be collected, and she has agreed to settle the notes receivable for $42,500. The notes receivable serve as collateral for the loan payable to the bank.
2. The inventories will likely be sold to a competitor, at 40 percent of book value.
3. Other than a $2,000 insurance refund, no recovery of prepaid items is expected.
4. Appraised at $300,000, the land and buildings are pledged as security on the mortgage.
5. The equipment is expected to be sold for $40,000.
6. The notes payable to the suppliers are unsecured.
7. Accrued wages do not exceed statutory limits per employee.
Required
Compute the following:
a. Estimated net loss on asset dispositions.
Do not use a negative sign with your answer.
$Answer
b. Amount of priority claims.
$Answer
c. Estimated payments to fully and partially secured creditors.
$Answer
d. Expected recovery percentage to unsecured creditors.
Round answer to one decimal place (ex: 0.2345 = 23.5%).
Answer%
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