Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liq

Question

Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $26,400 in free cash. The following debts, totaling $44,050, remain:

Indicate how much money will be paid to the creditor associated with each debt.

Administrative Expenses:

Salary during last month owed to Mr. Key and Ms. Rankin:

Government claims to unpaid taxes

Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $26,400 in free cash. The following debts, totaling $44,050, remain:

Explanation / Answer

If a company goes bankrupt, money will be paid to the creditor associated with debt in preferential order

First preference will be given to Liquidation administrative expense.

Then the employees of that company will be first in line to be paid. If the company owes wages, this is considered to be the top priority when it comes to dissolving the company.

Third revenue authorities: When a government is owed taxes, they are on the top of the list to get paid.

Free cash = $26,400

Administrative expense = $ 3650

Wages = $ 0

Government taxes dues = $7200

Cash flow left for payment of salary = $15550

Net cash flow of $15550 will be paid to Mr. Key and Ms. Rankin in ratio of their salary due (i.e. 19,025 : 6,425 )

Salary during last month owed to Mr. Key and Ms. Rankin: $15550

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