• The partially secured note payable will be satisfied by signing a new 6-year $37,000 note paying 12 percent annual interest. In addition, this creditor will receive 9,000 new shares of Holmess common stock.
• An outside investor has been enlisted to buy 10,000 new shares of common stock at $9 per share.
• The unsecured creditors will be offered 30 cents on the dollar to settle the remaining liabilities.part B

Holmes Corporation has filed a voluntary petition with the bankruptcy court in hopes of reorganizing. A statement of financial affairs has been prepared for the company showing these debts: $ 25,000 77,000 Liabilities with priority: Salaries payable Fully secured creditors: Notes payable (secured by land and buildings valued at $91, 000) Partially secured creditors: Notes payable (secured by inventory valued at $37,000) Unsecured creditors: Notes payable Accounts payable Accrued expenses 147,000 57,000 17,000 5,000 Holmes has 14,000 shares of common stock outstanding with a par value of $8 per share. In addition, it is currently reporting a deficit balance of $81,000. Company officials have proposed the following reorganization plan: The company's assets have a total book value of $359,000, an amount considered to be equal to fair value. The reorganization value of the assets as a whole, though, is set at $395,000. Employees will receive a one-year note in lieu of all salaries owed. Interest will be 12 percent, a normal rate for this type of liability. The fully secured note will have all future interest dropped from a 17 percent rate, which is now unrealistic, to a 12 percent rate. The partially secured note payable will be satisfied by signing a new 6-year $37,000 note paying 12 percent annual interest. In addition, this creditor will receive 9.000 new shares of Holmes's common stock 3 3 147.000 Notes payable Note payable6 years Common stock Additional paid-in capital Gain on discharge of debt 37,000 72,000 15,761 X 22,239 X 4 4 90.000 Cash Common stock 80.000 Additional paid-in capital 10,000 5 5 Notes payable Accounts payable Accrued expenses 57,000 17,000 5,000 Cash 15,800 63,200 X Gain on discharge of debt 6 6 85,438 X Gain on discharge of debt Additional paid-in capital Retained earnings 4,438 X 81,000 Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $27,100 in free cash. The following debts, totaling $47,550, remain: $ 7,900 Government claims to unpaid taxes Salary during last month owed to Mr. Key (not an officer) Administrative expenses Salary during last month owed to Ms. Rankin (not an officer) Unsecured accounts payable 19, 725 4,350 7, 125 8,450 Indicate how much money will be paid to the creditor associated with each debt. X Answer is complete but not entirely correct. Amounts $ 4.350 Types of Debts Administrative expenses Salary during last month owed to Mr. Key and Ms. Rankin Government claims to unpaid taxes $ 27,600 X $ 27,100 X