Question

- Hello Experts! I am looking for some help with this problem! I already completed section C I am looking for some help with sections B and D thank you so much!

Liquidation

At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet shown below (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $330,000, while the current assets were sold for another $310,000. Thus, the total proceeds from the liquidation sale were $640,000. The trustee's costs amounted to $30,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities.

Current assets	$  400		Account payable	$   50
Net fixed assets	600		Accrued taxes	40
			Accrued wages	30
			Notes payable	180
			Total current liabilities	$  300
			First-mortgage bonds*	300
			Second-mortgage bonds*	200
			Debentures	200
			Subordinated debentures**	100
			Common stock	50
			Retained earnings	-150
Total assets	$1,000		Total claims	$1,000
Notes: *All fixed assets are pledged as collateral to the mortgage bonds. **Subordinated to notes payable only.

1. How much will McDaniel's shareholders receive from the liquidation? Round your answer to the nearest dollar.
   $ 0
2. How much will the mortgage bondholders receive? Round your answer to the nearest dollar.
   $ ?
3. How much will other priority claimants receive from the liquidation? Round your answers to the nearest dollar. Do not round intermediate calculations.

Claimant	Amount
Trustee's expenses	$ 30,000
Workers' wages due	$ 30,000
Governments' taxes due	$ 40,000
Total	$ 100,000

4. How much will the remaining general creditors receive from the distribution before subordination adjustment? Round your answers to the nearest dollar. Do not round intermediate calculations.

Account	Amount Received
Accounts payable	$
Notes payable	$
Second mortgage bonds	$
Debentures	$
Subordinated debentures	$
Total	$

What is the effect of adjusting for subordination? Round your answers to the nearest dollar. Do not round intermediate calculations.

Account	Amount Received after subordination adjustment
Notes payable	$
Subordinated debentures	$

Answer 1

Solution:

B. From the $640000 received $100000 is already paid on priority. Out of the remaining 5,40,000$ the entire 5,00,000$ due to mortgage debentures will be paid.

D. Remaining 40000$ will be paid in the ration of 5:18:20 to Accounts payable, Notes Payable and Debenture. subordinate debentures will be paid only after payment fully to all three.

Accounts Payable	4,651.16
Notes Payable	16,744.19
Debentures	18,604.65
	40,000.00