Question

A company preparing for a Chapter 7 liquidation has listed the following liabilities:

• Note payable A of $102,000 secured by land having a book value of $56,000 and a fair value of $76,000.
• Note payable B of $132,000 secured by a building having a $66,000 book value and a $46,000 fair value.
• Note payable C of $66,000, unsecured.
• Administrative expenses payable of $26,000.
• Accounts payable of $126,000.
• Income taxes payable of $36,000.

The company also has these other assets:

• Cash of $16,000.
• Inventory of $112,000 but with a net realizable value of $66,000.
• Equipment of $102,000 but with a net realizable value of $56,000.

Based on this information, how much will each of the company’s liabilities be paid at liquidation?

Amount Payment on note payable A Payment on note payable B Payment on note payable C Payment on administrative expenses Payment on accounts payable Payment on income taxes payable

Answer 1

page: 01 - $160000 $ 282000 expenses Income Answer How much will each of the company's liabilities be paid at Liquidation Free assets cash Inventory = $ 66000 Equipment = $ 56000 total assets - liability with priosity Administrative $ 26000 tax payable $36000 $ 62000 Balance asselss- Total Assets $ 282,000 Incom tar payable -6-)$ 62,000 Free assets after payment of liabilities with priority: 220.000 Unsecured liabilities:- 26,000 Notes payable A Cin exess of value of Security) 86,000 Notes payable Bcin excess of Valio of security) Notes payable c 66,000 Accounts payable 126,000 Total 304,000 Percentage of secured liabilities to be pardo- $76,000 Percentage of unsewred liabilities $ 304,000 220,000 = 25%

The payment made for different liabilities at the time of liquidation is Calculated below:- Calculate Notes payable A = payments on note payable A% - Value of Security cland)+25% of remaining $ 26,000 $ 76,000 + (25% * $26.000) $ 76,000 + 6,500 $82,500 Calculate payments on nate payable B:- Notes payable B - Value of security [building] + 254. of remaining $86,000 = $46,000 + [254. X 86,000] $ 46,000 + $ 21,500 $67500 Calculate payment on notes payable c [unsecured] Notes payablec = 254. of remaining 66,000 $16,500 calculat payment on accounts payable (unsecured] Accounts payable = 25% of accounts payable amount 254 * $ 126,000 $31,500 The income tai expenses and administrative eupenses are liability with priority so their complete amount will be paid. 0