Question

Lynch, Inc., is a hardware store operating in Boulder, Colorado, Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The entire inventory can be sold for only $34,900. Following is a trial balance as of March 14, 2017, the day the company files for a Chapter 7 liquidation: Debit Credit $ 34,900 $ 26,600 52,000 18,400 8,240 4,120 82,600 1,300 Accounts payable Accounts receivable Accumulated depreciation, building Accumulated depreciation, equipment Additional paid-in capital Advertising payable Building Cash Common stock Equipment Inventory Investments Land Note Payable-Colorado Savings and Loan (secured by lien on land and building) Note Payable-Pirst National Bank (secured by equipment) Payroll taxes payable Retained earnings (deficit) Salaries payable (owed equally to two employees) Totals 53,000 31,100 125,000 16,200 10,300 71,500 185,600 1,290 141,000 $434,100 5,050 $ 434,100 Company officials believe that 60 percent of the accounts receivable can be collected if the company is liquidated. The building and land have a fair value of $77,100, and the equipment is worth $21,600. The investments represent shares of

Answer 1

Answer:

Book Value
Land	82600
Building	10300
Less: Accumulated Depreciation	-52000
Net Balance	40900
Equipment	31100
Less: Accumulated Depreciation	-18400
Net Balance	12700

Book values	Assets		Available for unsecured creditors
	Pledged with fully secured Creditors
40900	Land and Building	77100
	Less- notes payable - long term	-71500	5600
	Pledged with partially secured creditors
12700	Equipment	21600
	Less- notes payable (current)	-185600	Nil
	Free Assets
1300	Cash		1300
26600	Accounts Receivable (26600*60%)		15960
125000	Inventory		34900
16200	Investment		22800
	Total Available to pay liabilities with priority and unsecured cerditors		80560
	Less: Liabilities with priority (1290+5050+18300)		-24640
	Available for unsecured creditors		55920
	Estimated deficiency		10620
222700			203020
Book Values	Liabilities and Stockholders' Equity		Unsecured Nonpriority Liabilities
	Liabilities with priority
0	Administrative Expenses	18300
5050	Salaries Payable	5050
1290	Taxes Owed to government	1290
	Total	24640
	Fully Secured Creditors
71500	Notes Payable	71500
	Less: Land and Building	-77100	Nil
	Partially secured Creditors
185600	Notes Payable	185600
	Less: Equipment	-21600	164000
	Unsecured Creditors
34900	Accounts Payable		34900
4000	Advertising Payable		4120
-79640	Stockholders' Equity		-
222700			203020