C-2 BANKRUPTCY DISTRIBUTIONS Southwestern Wear Inc. has the following balance sh

Question

C-2 BANKRUPTCY DISTRIBUTIONS Southwestern Wear Inc. has the following balance sheet Current assets $1,875,000 Accounts payable $375,000 750,000 750,000 $1,875,000 1875,000 Total assets3750000 Total liabilities and equity $3,750,000 Notes payable Fixed assets 1875,000 Subordinated debentures Total liabilities Common equity The trustee's costs total $281,250, and the firm has no accrued taxes or wages. The debentures are subordinated only to the notes payable. If the firm goes bankrupt, how much will each class of investors receive under each of the following conditions? a. A total of $2.5 million is received from sale of the assets b. A total of $1.875 million is received from sale of the assets.

Explanation / Answer

Ans A) Debtholders will get $1.875Million

Equity holder will get $.625 Million

Ans b) Debtholders will get $1.875 Million

Equity holder will get $0

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