Question
I JUST NEED ANSWER FOR THE RED MARKED Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions
I JUST NEED ANSWER FOR THE RED MARKED
Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The entire inventory can be sold for only $34,300. Following is a trial balance as of March 14, 2017, the day the company files for a Chapter 7 liquidation:
Debit | Credit | |||
Accounts payable | $ | 34,300 | ||
Accounts receivable | $ | 26,300 | ||
Accumulated depreciation, building | 52,900 | |||
Accumulated depreciation, equipment | 16,500 | |||
Additional paid-in capital | 8,090 | |||
Advertising payable | 4,200 | |||
Building | 81,000 | |||
Cash | 1,280 | |||
Common stock | 50,400 | |||
Equipment | 31,900 | |||
Inventory | 124,000 | |||
Investments | 15,600 | |||
Land | 10,000 | |||
Note PayableColorado Savings and Loan (secured by lien on land and building) | 72,800 | |||
Note PayableFirst National Bank (secured by equipment) | 194,410 | |||
Payroll taxes payable | 1,250 | |||
Retained earnings (deficit) | 150,000 | |||
Salaries payable (owed equally to two employees) | 5,230 | |||
Totals | $ | 440,080 | $ | 440,080 |
Company officials believe that 60 percent of the accounts receivable can be collected if the company is liquidated. The building and land have a fair value of $76,400, and the equipment is worth $19,200. The investments represent shares of a nationally traded company that can be sold at the current time for $22,500. Administrative expenses necessary to carry out a liquidation would approximate $18,900.
Prepare a statement of financial affairs for Lynch, Inc., as of March 14, 2017.
Book Values Assets Available for Unsecured Creditors $ 38,100 $ 76,400 72,800 $ 3,600 15,400 Pledged with Fully Secured Creditors: Land and building Less: Notes payable Pledged with Partially Secured Creditors: Equipment Less: Notes payable Free Assets: Cash Accounts receivable Inventory Investments 19,200 194,410 1,280 26,300 124,000 15,600 0 1,280 15,780 34,300 22,500 0 77,460 Total available to pay liabilities with priority and unsecured creditors Less: Liabilities with priority Available for unsecured creditors Estimated deficiency 25,380 52,080 $ 220,680 52,080 Book Values Liabilities and Stockholders' Equity Unsecured Nonpriority Liabilities $ Liabilities with Priority: Administrative expenses Salaries payable Payroll taxes payable $ 5,230 1,250 >I 18,900 5,230 1,250 0 0 $ 25,380 72,800 72,800 76,400 0 194,410 Total Fully Secured Creditors: Notes payable Less: Land and building Partially Secured Creditors: Notes payable Less: Equipment Unsecured Creditors: Accounts payable Advertising payable Investments Stockholders' equity 194,410 19,200 $ 175,210 34,300 4,200 34,300 4,200 (77,460) (91,510) $ 143,220 0 $ 213,710
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