This is due tonight!! Please help! kruptcy and Reorganization Management, Concis

Question

This is due tonight!! Please help! kruptcy and Reorganization Management, Concise ?? $1,080 540 180 180 Total current liabilities 1,980 900 Second mortgage bonds 900 Total mortgage bonds $1,800 Subordinated debentures 1080 $4,860 2880 Current assets $5,040 Accounts payable Notes payable (to bank) Accrued taxes Accrued wages Fixed assets 2,700 First mortgage bonds Total liabilities Common stock Total assets 7,4 Total liabilities and equity $740 The debentures are subordinated only to the notes payable. Suppose the company goes bankrupt and is liquidated, with $1,800 being received from the sale of the fixed assets, which were pledged as security for the first and second mortgage bonds, and $2,880 received from the sale of current assets. The trustee's costs total $480. How much will each class of investors receive?

Explanation / Answer

Question 1: First Image:

$1800 received from sale of fixed assets are adjusted against first and second mortgage bonds which is also equal to $1,800

The net received from sale of current assets after adjusting for costs = 2,880-490 = 2,400.

Out of this, 1980 is adusted aginst the current liabilties.

2,400 -1,980 = $420 remains.

This $420 are adjusted with subordinatred dedentures worth 1080. After this there will be 1080-420 = $600 worth subordinated debentures which still have to be re-payed. Since the company has no more assets, the owners of these debuntures have to write off the investment since they took risk and invested in these junk subordinated debentures which are unsecured.

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