Yoste, Inc. is in the process of liquidating and going out of business. The firm

Question

Yoste, Inc. is in the process of liquidating and going out of business. The firm has $35,000 in cash, inventory totaling $100,000, accounts receivable of $75,000, plant and equipment with a $195,000 book value, and total liabilities of $300,000. It is estimated that the inventory can be disposed of in a liquidation sale for 70% of its cost, all but 10% of the accounts receivable can be collected, and plant and equipment can be sold for $215,000. Calculate the amount of cash that would be available to the stockholders if the accounts receivable are collected, the other assets are sold as described, and the liabilities are paid in full. (Use the formula Assets = Liabilities + Owners Equity)

Explanation / Answer

As the business is no longer a going concern, all assets are to be considered at liquidation values:

Estimated liquidation proceeds of assets:

Applying the equation Assets= Liabilities + Owners' Equity,

Owners' Equity = Assets - liabilities = 327,500 - 300,000 = $ 27,500.

Therefore, the amount of cash that would be available to the stockholders is $ 27,500.

$ Cash 35,000 Inventory 70,000 Accounts receivable 7,500 Plant and equipment 215,000 Total 327,500

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