Question

2 A company preparing for a Chapter 7 liquidation has listed the following liabilities: 56 nts . • Note payable A of $134,000 secured by land having a book value of $72,000 and a fair value of $92,000. Note payable B of $164,000 secured by a building having a $82,000 book value and a $62,000 fair value. • Note payable C of $82,000, unsecured. • Administrative expenses payable of $42,000. • Accounts payable of $142,000. Income taxes payable of $52,000. . eBook The company also has these other assets: Print • Cash of $13,600. • Inventory of $144,000 but with a net realizable value of $82,000. Equipment of $134,000 but with a net realizable value of $72,000. . 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

Statement showing liabilities to be paid at liquidation to Preferntial Creditors
Particulars	$	$
Asset Realised:
Cash	13600
Inventory	82000
Equipment	72000	167600
Secured Creditors:
Notes Payable (A)	134000
Less: Land (Secured)	92000
Deficienty of $ is to be paid as Unsecured creditors	42000
Notes Payable (B)	164000
Less: Building (Secured)	62000
Deficienty of $ is to be paid as Unsecured creditors	102000
Preferencial Creditors:
Income Tax payable		52000
(Assuming whole amount is payable within 12 months)
Estimated Surplus		115600

Amount Payable to Unsecured Creditors
Notes Payable (A)	42000
Notes Payable (B)	102000
Notes Payable'(C )	82000
Admin. Exp.	42000
Accounts Payable	142000
Total	410000

Since the amount payable to unsecured creditors is more than the surplus, therefore, they should be paid in proportion as below:

	Payable	Ratio for disribution of surplus	Paid
Notes Payable (A)	42000	42	11842
Notes Payable (B)	102000	102	28759
Notes Payable'(C )	82000	82	23120
Admin. Exp.	42000	42	11842
Accounts Payable	142000	142	40037
Total	410000	410	115600

Company's Liabilities to be paid at Liquidation	$
Notes Payable (A)	103842
Notes Payable (B)	90759
Notes Payable'(C )	23120
Admin. Exp.	11842
Accounts Payable	40037
Income Tax payable	52000
Total	321600