Kimber Co. is in the process of liquidating and going out of business. The firm\

Question

Kimber Co. is in the process of liquidating and going out of business. The firm's accountant has provided the following balance sheet and additional information: It is estimated that all but 19 percent of the accounts receivable can be collected, and that the merchandise inventory can be disposed of in a liquidation sale for 85 percent of its cost. Buildings and equipment can be sold at $40,000 above book value (the difference between original cost and accumulated depreciation shown on the balance sheet), and the land can be sold at its current appraisal value of $61,000. In addition to the liabilities included in the balance sheet, $2,185 is owed to employees for their work since the last pay period and interest of $5,305 has accrued on notes payable and long-term debt. Required: Calculate the amount of cash that will be available to the stockholders if the accounts receivable are collected, the other assets are sold as described, and all liabilities and other claims are paid in full.

Explanation / Answer

Assets Recovery Cash $      19,000 100% $    19,000 Accounts receivable $      60,500 81% $    49,005 Merchandise inventory $   112,000 85% $    95,200 Total current assets $ 191,500 $ 163,205 Land $      48,000 $    61,000 Buildings & equipment $   346,500 Less Accumulated depreciation $ (192,500) 154000+40000 $ 194,000 Total land, buddings, & equipment $ 202,000 $ 255,000 Total assets $ 393,500 $ 418,205 Liabilities and Stockholders' Equity Accounts payable $      45,000 45000 $    45,000 Notes payable $      56,500 56500 $    56,500 employees due $      2,185 interest $      5,305 Total current liabilities $ 101,500 Long-term debt $    54,200 $    54,200 Total liabilities $ 155,700 $ 163,190 Stockholders' Equity Common stock, no par $   110,000 Retained Earnings $   127,800 Total Stockhholder's equity $ 237,800 Total liabilities and Stockhholder's equity $ 393,500 418205-163190 $ 255,015 Cash Available to shareholders

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