A statement of financial affairs created for an insolvent co

A statement of financial affairs created for an insolvent corporation that is beginning the process of liquidation discloses the following data (assets are shown at net realizable values) Assets pledged with fully secured creditors Fully secured liabilities Assets pledged with partially secured creditors Partially secured liabilities Assets not pledged Unsecured liabilities with priority Accounts payable (unsecured) $220,000 160,000 390,000 510,000 310,000 182,800 400,000 a. This company owes $13,000 to an unsecured creditor (without priority). How much money can this creditor expect to collect? Expected amount by creditor b. This company owes $120,000 to a bank on a note payable that is secured by a security interest attached to property with an estimated net realizable value of $90,000. How much money can this bank expect to collect? Expected amount by bank

Solution

Answer a. Amount Available for Unsecured Creditors Assets Not Pledged            310,000.00 Add: Excess Assets of Fully Secured Creditors - $220,000 - $160,000               60,000.00 Total Amount            370,000.00 Less: Unsecured Liabilities with priority            182,800.00 Amount Available for Unsecured Creditors            187,200.00 Calculation of Unsecured Creditors Accounts Payable (Unsecured)            400,000.00 Partially Secured Creditors ($510,000 - $390,000)            120,000.00 Total Unsecured Creditors            520,000.00 Distribution to Unsecured Creditors = $187,200 / $520,000 Distribution to Unsecured Creditors = 36% Amount received by $13,000 Unsecured Creditor = $13,000 X 36% Amount received by $13,000 Unsecured Creditor = $4,680 Answer b. Secured portion               90,000.00 Unsecured portion - ($120,000 - $90,000) X 36%               10,800.00 Expected Amt. Received by Bank            100,800.00