Question

A company going through a Chapter 7 bankruptcy has the following account balances:

Cash	$	40,000
Receivables (30% collectible)		60,000
Inventory (worth $35,000)		100,000
Land (worth $190,000) (secures note payable)		150,000
Buildings (worth $230,000) (secures bonds payable)		300,000
Salaries payable (4 workers owed equal amounts for last 2 weeks)		15,000
Accounts payable		100,000
Note payable (secured by land)		160,000
Bonds payable (secured by building)		400,000
Common stock		200,000
Retained earnings		(190,000	)

How much will be paid to each of the following?

Salaries Payable

Accounts Payable

Note Payable

Bonds Payable

Answer 1

	$
Salaries Payable	15,000.00
Accounts Payable	40,000.00
Note Payable	160,000.00
Bond Payable	298,000.00
Explanation:
Free assets:
	$
Cash	40,000.00
Receivables (60000*30%)	18,000.00
Inventory	35,000.00
Land (in excess of secured note)	30,000.00
(190,000-160,000)
Total	123,000.00
Less: Liabilities with priority
Salary Payable (Below Maximum)	15,000.00
Free assets available	108,000.00
Unsecured Liabilities;	$
Accounts Payable	100,000.00
Bond Payable (Less Secured interest in building)	170,000.00
(400,000-230,000)
Unsecured Liabilities	270,000.00
Percentage of unsecured liabilities to be paid	40%
(108,000/270,000)
Amounts to be paid for:	$
Salaries Payable (liability with priority to be paid in full)	15,000.00
Accounts Payable (unsecured—will collect 40% of	40,000.00
debts of $100,000)
Note Payable (fully secured by land—will collect	160,000.00
entire balance)
Bond Payable (partially secured—will collect $230,000	298,000.00
from building and 40 percent of the remaining $170,000)