Question

Oregon Corporation has filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Reform Act. Its creditors are considering an attempt to force liquidation. The company currently holds cash of $6,000 and accounts receivable of $25,000. In addition, the company owns four plots of land. The first two (labeled A and B) cost $8,000 each. Plots C and D cost the company $20,000 and $25,000, respectively. A mortgage lien attached to each parcel of land as security for four different notes payable of $15,000 each. Presently, the land can be sold for the following: Plot A.. Plot B... Plot C...... Plot D.. $16,000 $11,000 $14,000 $27,000 Another $25,000 note payable is unsecured. Accounts payable at this time total $32,000. of this amount, $12,000 is salary owed to the company's workers. No employee is due more than $3,400. The company expects to collect $12,000 from the accounts receivable if liquidation becomes necessary. Administrative expenses required for liquidation are anticipated to be $16,000. Prepare a statement of financial affairs for Oregon Corporation If the company is liquidated, how much cash would be paid on the note payable secured by plot B? If the company is liquidated, how much cash would be paid on the unsecured note payable? If the company is liquidated and plot Dis sold for $30,000, how much cash would be paid on the note payable secured by plot B?

Answer 1

A.

OREGON CORPORATION
Sr.No	Assets/Liabilities	Value
1	Cash on Hand	$                                     6,000.00
2	Accounts Receivabes	$                                   25,000.00
3	Plot A	$                                   16,000.00
	Plot B	$                                   11,000.00
	Plot C	$                                   14,000.00
	Plot B	$                                   27,000.00
4	Notes Payable	$                                (25,000.00)
5	Accounts Payables	$                                (32,000.00)
	NET WORTH	$                                   42,000.00

B. If company is liquidated at present then the cash for note payable secured by plot B would be 11,000 because that's the current selling price for that plot.

C. After the all the payments against notes payables, whatever balances are left the liquidation administrative expenses would be deducted and the balance 15,000 would be payable to unsecured notes payable;

Sr.No	Assets/Liabilities	Value	Available for Notes Payable	Balance for other creditors
1	Cash on Hand	$                                     6,000.00	$                                                   -	$                                   6,000.00
2	Accounts Receivabes	$                                   25,000.00	$                                                   -	$                                 12,000.00
3	Plot A	$                                   16,000.00	$                                   15,000.00	$                                   1,000.00
	Plot B	$                                   11,000.00	$                                   11,000.00	$                                                -
	Plot C	$                                   14,000.00	$                                   14,000.00	$                                                -
	Plot B	$                                   27,000.00	$                                   15,000.00	$                                 12,000.00
4	Administration exp reserve	$                                (16,000.00)	$                                                   -	$                              (16,000.00)
5	Notes Payable	$                                (25,000.00)	$                                                   -
6	Accounts Payables	$                                (32,000.00)
	NET WORTH	$                                   26,000.00	$                                   55,000.00	$                                 15,000.00

please note that Accounts receivables would only realize 12,000 in case of liquidation in present

D. Even if Plot D is sold at 30,000 the notes payable amount for Plot B would remain unchanged.