Statement of realization and liquidation, asset distribution. You have been appointed as the trustee in bankruptcy liquidation involving the Kramer Manufacturing Corporation. After the order for relief, Kramer submitted the following inventory of assets and liabilities as of June 1.

 

During the two-month period ending July 31, the following activities took place:

a. The debt on the line of credit was settled through the collection of accounts receivable that secured the debt. Receivables with a book value of $400,000 were collected in the amount of $385,000.

b. Raw materials inventory with a book value of $300,000 was returned to vendors with fully secured claims of $300,000.

c. Raw materials with a book value of $50,000 were introduced into production in order to finish work in process that had a book value of $120,000. In addition to the raw materials, labor costs of $24,000 and overhead costs of $12,000 (excluding depreciation) were incurred to finish the inventory. Vendors providing the overhead items secured their claims with the inventory produced. The resulting finished goods were sold for $250,000. Remaining proceeds of the sale were remitted to the partially secured vendors with balances due of $300,000.

d. The remaining inventory included in the June 1 inventory consisted of finished goods that were sold for $180,000. Of the proceeds from the sale, $90,000 was remitted to the balance of the vendors with claims partially secured by inventory.

e. The equipment served as collateral on the note payable. Various equipment brokers sold the equipment for $1,180,000, net of commissions, and the proceeds were applied toward the note.

f. Of the remaining accounts receivable, only $32,000 was collected. The balance of the accounts is deemed to be uncollectible.

g. The company has been making every attempt to transfer the patent rights to another party. Unfortunately, no progress has been made to date. However, on July 10 the company did receive a $4,000 invoice for legal services in connection with a potential sale.

h. The other assets were liquidated for $120,000.

i. The other liabilities included in the June 1 inventory consisted of the following: a $250,000 note payable to various shareholders of the corporation, a $25,000 contribution to the corporate pension fund, $10,000 of legal fees in connection with the bankruptcy proceeding, $35,000 due to federal and state tax authorities for past income and sales taxes, and $30,000 of various miscellaneous unsecured claims without priority. The balance of the other liabilities is traceable to unsecured claims that were incurred after commencement of the bankruptcy but before the order for relief.

j. Since the date of the inventory, the company has fallen behind in its rental payments, and $10,000 is due the lessor. Additional attorney and accounting fees in connection with the bankruptcy proceeding have been incurred in the amount of $9,000.

Required

1. Prepare a statement of realization and liquidation for the period from June 1 through July 31.

2. Prepare a schedule indicating in what order assets remaining as of July 31 will be distributed among the remaining creditors.

Assets Cash and cash equivalents Accounts receivable Inventory Equipment (net) Patents... Other assets Total assets $ 40,000 450,000 630,000 1,560,000 210,000 135,000 $3,025,000 Accounts payable: Partially secured Fully secured Line of credit Note payable Other liabilities Total liabilities. Liabilities $ 400,000 300,000 320,000 1,500,000 400,000 $2,920,000