Question

Mason Manufacturing, a manufacturer of auto parts and accessories, has the following Balance Sheet:

Mason Manufacturing, Inc.
Balance Sheet for the Year Ended December 31, 2016
	Amount	% of Total
Current Assets	1,500,000	44.44%
Fixed Assets	1,875,000	55.56%
Total Assets	3,375,000	100.00%
Accounts Payable	375,000	11.11%
Notes Payable	500,000	14.81%
Subordinated Debentures	750,000	22.22%
Total Debt	1,625,000	48.15%
Common Equity	1,750,000	51.85%
Total Liabilities and Equity	3,375,000	100.00%

The trustee’s costs total $281,250, and the firm has no accrued taxes or wages. The “Subordinated Debentures” are subordinated only to the “Notes Payable.”

1. If the firm goes bankrupt and liquidates, how much will each of the creditors, including the trustee, receive if a total of $2.5 million is realized from the sale of the firm’s assets? Also, what portion or percentage of each creditor’s and trustee’s claim will be satisfied in this liquidation?
2. Will the common shareholders of Mason Manufacturing receive any proceeds from the sale of the firm’s assets?

Answer 1

Ans 1) As the total debt is paid first and if any leftover will be distributed among the common equity share holders.So the following amount will be paid

Claims Disbursement of $ 25,00,000.

Particulars	Amount Due	Amount Paid	Percentage
Trustee's Cost	$ 2,81,250	$ 2,81,250	100%
Accounts Payable	$ 3,75,000	$3,75,000	100%
Notes Payable	$5,00,000	$5,00,000	100%
Subordinate Debentures	$7,50,000	$7,50,000	100%
Common Equity	$17,50,000	$5,93,750	33.92%

Ans 2) Yes the common equity shareholder will get a total of $5,93,750 out of the $25,00,000 i.e 33.92% of there total due in the form of Common Equity.