HOW MUCH IS AVAILABLE TO PAY GENERAL CREDITS?

Bankruptcy problem

Assets Liabilities and Equity

Cash $40,000 Accounts payable $200,000

Accounts receivable 200,000 Accrued wages 50,000

Secured bank loan 150,000

Unsecured bank loan 250,000

Inventory 400,000 Mortgage 300,000

Plant and equipment 360,000 Subordinated debentures 60,000

Junior subordinated debentures 40,000

Common stock 50,000

Retained earnings (100,000)

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 receivable for $0.70 per $1.00.

The inventory, which secures the bank loan, can be sold for $0.50 on the $1.00.

The plant and equipment, which secures the mortgage, are sold for $250,000.

The payables are equally subordinated to both bank loans.

The subordinated debentures are subordinated to the mortgage.

The junior subordinated debentures are subordinated to the subordinated debentures.

Court costs, pension costs have previously been covered.

How much is available to pay general credits?