25-4 Liquidation The following balance sheet represents Boles Electronics Corpor
ID: 2651506 • Letter: 2
Question
25-4 Liquidation The following balance sheet represents Boles Electronics Corpora- tion's position at the time it filed for bankruptcy (in thousands o f dollars): 1,600 500 150 50 Total current assets 1,000 Total current liabilities 2,300 2,000 5,000 Subordinated debentures 2,500 debentures 2,500 Cash Receivables Inventories s 10 Accounts payable 100 Notes payable 890 Wages payable Taxes payable 4,000 Mortgage bonds Net plant Net equipment Preferred stock Common stock 1,500 1,700 $10,000 Total assets $10,000 Total claims The mortgage bonds are secured by the plant but not by the equipment. The subordinated debentures are subordinated to notes payable. The firm was unable to reorganize under Chapter 11; therefore, it was liquidated under Chapter 7.Explanation / Answer
Answer:a The total amount available for distribution is $3,190,000 proceeds + $10,000 cash = $3,200,000. The total creditor and trustee claims are $6,800,000 + $200,000 = $7,000,000. Since the claims far exceed the available funds, preferred and common stockholders will receive nothing.
Answer:b
The following table shows the liquidation distribution (in thousands of dollars):
Priority Creditor Subordination
Claimant Distribution Distribution Adjustment Percentage
Accounts payable $ 384 $ 384 24%
Notes payable 120 500 100
Wages payable $ 150 150 150 100
Taxes payable 50 50 50 100
Mortgage bonds 1,600 1,696 1,696 85
Subordinated
Debentures 600 220 9
Trustee 200 200 200 100
$2,000 $3,200 $3,200
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