Please show all work

A. How much will McDaniel s shareholders receive from the liquidation?

B. How much will the mortgage bondholders receive?

C. Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation?

d. Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? What is the effect of adjusting for subordination?

Answers

a. $0.

b. First mortgage holders, $300,000; Second mortgage holders, $100,000 plus $12,700as a general claimant.

c. Trustee s expenses, $50,000;Wages due, $30,000;Taxes due, $40,000

.d. Before subordination Accounts payable = $6,350;Notes payable = $22,860;Second mortgage = $12,700 + $100,000;Debentures = $25,400;Sub. debentures = $12,700. After subordination Notes payable = $35,560;Sub. debentures = $0.

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 $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sale were $600,000. The trustee's costs amounted to $50,000; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities. 400 Accounts payable 600 Accrued taxes $ 50 40 30 180 S 300 300 200 200 100 50 Current assets Net fixed assets Accrued wages Notes payable Total current liabilities First-mortgage bonds Second-mortgage bonds Debentures Subordinated debentures" Common stock Retained earnings ( 150) Total assets $1,000 Total claims $1,000