Question

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Problem 24-01 Liquidation Southwestern Wear Inc. has the following balance sheet: $1,875,000 Accounts payable $375,000 Current assets Fixed assets 1,875,000 Notes payable 750,000 Subordinated debentures 750,000 Total debt $1,875,000 Common equity 1,875,000 Total assets $3,750,000 Total liabilities and equity $3,750,000 The trustee's costs total $341,750, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $3 million is received from sale of the assets? Distribution of proceeds on liquidation: पी पी पी 1. Proceeds from sale of assets 2. First mortgage, paid from sale of assets 3. Fees and expenses of administration of bankruptcy 4. Wages due workers earned within 3 months prior to filing of bankruptcy petition 5. Taxes 6. Unfunded pension liabilities 7. Available to general creditors पी पी पी पी

Answer 1

Distribution of Proceeds on liqenetations la Proceed from Cale of Asset 43000000 - First Mortgage paid from Sule of Asset 3. fees and expenses of Adre. of bankcrupty (4.341750) 4. wages due Prion 3 montley- wrokers earned within to filing of bankrupt' s. Taxes 6. Unfunded pension Liabilitles- 7 Available to General creditors $26,58; 250 pistulbution to General creditor:- Claime of General Creditor | Claim I Application tool to Distributou Alber Subordination of enginet clany Recelved. Noles Payable. 87, 50000 & 7,50,000 $1908 950 98.98) Account Payable (8 375000 $3,75,000 4 15 330 50 14.10%. Suboo dinalad Debeute 47, 50,000 $ 7,59,00 o 14783250, 28.20). To feel 1818,75000 8_1875000 $1875ooo Available to common Stakeholders - 9783950 ( 9658260 - 187.5000),