Question

The Walston Company is to be liquidated and has the following liabilities: $ 11,200 132,000 91,000 Income taxes Notes payable (secured by land) Accounts payable Salaries payable (evenly divided between two employees) Bonds payable Administrative expenses for liquidation 12,000 76,000 26,000 The company has the following assets: Current assets Land Buildings and equipment Book Value $ 86,000 106,000 106,000 Fair Value $ 41,000 96,000 130,000 How much money will the holders of the notes payable collect following liquidation? Total amount collected

Answer 1

Total amount collected

$117,600

Explanation:-

Free assets:-

Current aseets	$41,000
Buildings and Equipment	$130,000
Total	$171,000

Liabilities with priority:-

Administrative expenses for liquidation	$26,000
Salaries payable (only $6,000 per employee)	$12,000
Income taxes	$11,200
Total	$49,200

Free assets after payment of Liabilities with priority = $171,000 -$49,200 = $121,800

Unsecured liabilities:-

Notes payable (in excess of value of security) ($132,000 -$96,000)	$36,000
Account payable	$91,000
Bond payable	$76,000
Total	$203,000

Percentage of unsecured Liabilities to be paid: $121,800/$203,000 = 60%

Payment of notes payable:-

Value of security (land)	$96,000
60% of remaining ($36,000 ×60%)	$21,600
Total collected by holders	$117,600