Problem

The balance sheet of Everlast Window Corporation at June 30, 2011, contains the following...

The balance sheet of Everlast Window Corporation at June 30, 2011, contains the following items:

Assets

 

Cash

$40,000

Accounts receivable—net

70,000

Inventories

50,000

Land

30,000

Building—net

200,000

Machinery—net

60,000

Goodwill

50,000

 

$500,000

Equities

 

Accounts payable

$110,000

Wages payable

60,000

Property taxes payable

10,000

Mortgage payable

150,000

Interest on mortgage payable

15,000

Note payable—unsecured

50,000

Interest payable—unsecured

5,000

Capital stock

200,000

Retained earnings deficit

(100,000)

 

$500,000

The company is in financial difficulty, and its stockholders and creditors have requested a statement of affairs for planning purposes. The following information is available:

1. The company estimates that $63,000 is the maximum amount collectible for the accounts receivable.


2. Except for 20 percent of the inventory items that are damaged and worth only $2,000, the cost of the other items is expected to be recovered in full.


3. The land and building have a combined appraisal value of $170,000 and are subject to the $150,000 mortgage and related accrued interest.


4. The appraised value of the machinery is $20,000.


5. Wages payable and property taxes payable are unsecured priority items that do not exceed any limitations of the bankruptcy act.

REQUIRED

1. Prepare a statement of affairs for Everlast Window Corporation as of June 30, 2011.


2. Compute the estimated settlement per dollar of unsecured liabilities.

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Solutions For Problems in Chapter 18