A statement of financial affairs created for an insolvent corporation that is be

Question

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):

  

This company owes $13,000 to an unsecured creditor (without priority). How much money can this creditor expect to collect?

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?

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):

Explanation / Answer

Part a)

We need to determine the total amount available with the use of total unpledged assets and the excess of assets pledged with fully secured creditors over fully secured liabilities.

Total Amount Available (Free Assets Available) = 310,000 + (220,000 - 160,000) = $370,000

Now, we can calculate the value of amount available for creditors and unsecured liabilities and determine the amount to be paid to the unsecured creditor of $13,000 as follows:

__________

Part b)

The total amount the bank can expect to collect is calculated as follows:

Total Amount Expected by Bank = NRV + (Total Amount Due - NRV)*Distribution to Unsecured Creditors Percentage = 90,000 + (120,000 - 90,000)*36% = $100,800 (Answer for Part b)

Amount Available 370,000 Less Liabilities with Priority 182,800 Amount Available for Unsecured Creditors (A) 187,200 Accounts Payable 400,000 Add Excess of Partially Secured Debt in Excess of Pledged Assets (510,000 – 390,000) 120,000 Total Unsecured Liabilities (B) 520,000 Distribution to Unsecured Creditors (Percentage) [A/B] 36% Expected Amount to An Unsecured Creditor (Without Priority) [13,000*36%] $4,680 (Answer for Part a)

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