Homework SourseOlds Company declares Chapter 7 bankruptcy The following are
Olds Company declares Chapter 7 bankruptcy. The following are the asset and liability book values at that time. Administrative expenses are estimated to be $20,000:
The holders of note payable B want to collect at least $129,000.
To achieve this goal, how much does the company have to receive in the liquidation of its equipment?
| Cash | $ | 32,000 | |
| Accounts receivable | 68,000 | (worth $36,000) | |
| Inventory | 78,000 | (worth $64,000) | |
| Land (secures note A) | 208,000 | (worth $168,000) | |
| Building (secures bonds) | 408,000 | (worth $336,000) | |
| Equipment | 128,000 | (worth unknown) | |
| Accounts payable | 188,000 | ||
| Taxes payable to government | 28,000 | ||
| Note payable A | 186,000 | ||
| Note payable B | 258,000 | ||
| Bonds payable | 308,000 | ||
Solution
Collection of Asset (other than equipment ) and payment of secured and priority liabilities
Amount left for unsecured creditors * Ratio of note payable B /Total unsecured creditors = 129000
[150000+X]*258000/464000=129000
[150000+x] * .5560=129000
83400+.5560x =129000
.5560x = 129000-83400
.5560x = 45600
x = 45600/.5560
= $ 82014.39 [approx 82000]
Amount of equipment = $ 82014 [rounded to 82000]
| Asset collected and available for unsecured | Secured | Unsecured Liabilities | |
| cash | 32000 | ||
| Accounts receivable | 36000 | ||
| Inventory | 64000 | ||
| Land | 18000 | (168000) | 18000 [186000-168000] |
| Building | 28000 [336000-308000] | (308000) | 0 |
| Equipment | X | ||
| Total cash available | 178000+ x | ||
| Taxe to govenment | (28000) | ||
| Amount left to unsecured liabilities | 150000+x | ||
| Accounts payable | 188000 | ||
| Note payable A | 18000 | ||
| Note payable B | 258000 (out of which atleast 129000 tobe collected) | ||
| Total unsecured liabilities | 464000 |
