Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $440,000, while the current assets were sold for another $250,000. Thus, the total proceeds from the liquidation sale were $690,000. The trustee's costs amounted to $25,000; 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 Account payable $ 50
Net fixed assets 600 Accrued taxes 40
Accrued wages 30
Notes payable 180
Total current liabilities $ 300
First-mortgage bondsa 300
Second-mortgage bondsa 200
Debentures 200
Subordinated debenturesb 100
Common stock 50
Retained earnings (150)
Total assets $ 1,000 Total liabilities & equity $ 1,000
Notes: aAll fixed assets are pledged as collateral to the mortgage bonds. bSubordinated to notes payable only.

  1. How much will McDaniel's shareholders receive from the liquidation? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answer to the nearest dollar. If no entry is required, enter "0".

    $

  2. 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 -Select-isis notItem 3 equal to their full claim. Therefore, the first mortgage holders have $ in unsatisfied claims.

  3. 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 -Select-isis notItem 6 equal to their full claim. Therefore, the second mortgage holders have $ in unsatisfied claims.

  4. How much will the other priority claimants (in addition to the mortgage bondholders) receive from the liquidation? Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar.

    Remainging primary claimants Amount
    Trustee's expenses $
    Workers' wages due $
    Governments' taxes due $
    Total $

  5. How much will the remaining general creditors receive from the distribution before subordination adjustment? Do not round intermediate calculations. Write out your answer completely. For example, 5 thousand dollar should be entered as 5,000. Round your answers to the nearest dollar.

    Account 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. 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".

    Account Amount Received after subordination adjustment
    Accounts payable $
    Notes payable $
    Second mortgage bonds $
    Debentures $
    Subordinated debentures $
    Total $

    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. For example, 5 thousand dollar should be entered as 5,000. Round your answer to the nearest dollar.

    $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sport Finance

Authors: Gil Fried, Timothy D. DeSchriver, Michael Mondello

4th Edition

1492559733, 978-1492559733

More Books

Students also viewed these Finance questions

Question

Avoid evasiveness. Be direct with your answers when possible.

Answered: 1 week ago

Question

b. Did you suppress any of your anger? Explain.

Answered: 1 week ago