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?

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?

  Assets pledged with fully secured creditors $ 220,000      Fully secured liabilities 160,000      Assets pledged with partially secured creditors 390,000      Partially secured liabilities 510,000      Assets not pledged 310,000      Unsecured liabilities with priority 182,800      Accounts payable (unsecured) 400,000   

Explanation / Answer

Value of Asset attached Liability amount Surplus Shortage 1) Fully secured creditors 220000 160000 60000 0 2) Asset secured with partially secured creditors 390000 510000 0 120000 Assets will apply firstly to secured creditors and then will apply to unsecured creditors Summary of assets Amount 1) Surplus on Fully secured creditors 60000 2) Assets not pledged 310000 Asset available to pay off 370000 Out of unsecured liabilities , liabnilities with priority will be paid first and then other unsecured non priority will be paid Distribution 1) Unsecured liability with priority 182800 2) Remaining Unsecured Liabilities 187200 Remaining Unsecured Liabilities included Unpaid partially secured creditors 120000 Accounts Payable ( unsecured) 400000 Total 520000 In total 187200 has been distributed to unsecured liabilities of 520000 a) Now a unsecured creditor of 13000 would have received proportionate amount calculated as = (Amount distributed to unsecured Liabilities / Unsecured Liabilities) x 13000 = ( 187200 / 520000) x 13000 4680 So a unsecured creditor for 13000 received 4680 in total for hi share of liability b) considering Bank notes payable to be part of partially secured creditors. Amount exceeding 90000 has been paid in form of other unsecured liabilities So same proportion will apply as above = (Amount distributed to unsecured Liabilities / Unsecured Liabilities) x 30000 = ( 187200 / 520000) x 30000 10800 So bank would receive 90000 initially out of secured part of asset and 10800 as unsecured part in Total bank will receive 100800

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