Liquidation

At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown below (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $380,000, while the current assets were sold for another $170,000. Thus, the total proceeds from the liquidation sale were $550,000. The trustee's costs amounted to $70,000; no single worker was due more than the maximum allowable wages per worker, and there were no unfunded pension plan liabilities.

Balance Sheet (Thousands of Dollars)

Current assets $ 400

Net fixed assets $600

Total assets $ 1,000

Liabilities & Equity

Account payable $ 50

Accrued taxes 40

Accrued wages 30

Notes payable 180

Total current liabilities $ 300

First-mortgage bonds(a) 300

Second-mortgage bonds(a) 200

Debentures 200

Subordinated debentures(b) 100

Common stock 50

Retained earnings (150)

Total liabilities & equity $ 1,000

Note: (a) All fixed assets are pledged as collateral to the mortgage bonds. (b) Subordinated to notes payable only.

a. How much will McDaniel's shareholders receive from the liquidation? Write out your answer completely. Round your answer to the nearest dollar. If no entry is required, enter "0". _____$

b. How much will the first mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".

The first mortgage bondholders will receive _____$ from collateralized assets that (is/is not) equal to their full claim. Therefore, the first mortgage holders have ____$ in unsatisfied claims.

c. How much will the second mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar. If no entry is required, enter "0".

The second mortgage bondholders will receive _____ $ from collateralized assets that (is/is not) equal to their full claim. Therefore, the second mortgage holders have ____$ in unsatisfied claims.

d. How much will the other priority claimants (in addition to the mortgage bondholders) receive from the liquidation? Write out your answer completely. Round your answers to the nearest dollar.

Remaining primary claimants Amount

Trustee's expenses $

Workers' wages due $

Governments' taxes due $

Total $

e. How much will the remaining general creditors receive from the distribution before subordination adjustment? Do not round intermediate calculations. Write out your answer completely. Round your answers to the nearest dollar.

Amount Received before subordination adjustment

Accounts payable $

Notes payable $

Second mortgage bonds $

Debentures $

Subordinated debentures $

Total $

How much will the remaining general creditors receive after subordination? Do not round intermediate calculations. Write out your answer completely. Round your answers to the nearest dollar. If no entry is required, enter "0".

Amount Received after subordination adjustment

Accounts payable $

Notes payable $

Second mortgage bonds $

Debentures $

Subordinated debentures $

Total $

f. How much in total will the second mortgage holders receive (include the amount received from collateral)? Do not round intermediate calculations. Write out your answer completely. Round your answer to the nearest dollar. _____$