4. A firm’s balance sheet is given below. Liquidation bankruptcy has been initia
ID: 2824646 • Letter: 4
Question
4. A firm’s balance sheet is given below. Liquidation bankruptcy has been initiated, and the cost of administering the bankruptcy proceedings is $50,000. The mortgage bonds were secured by the equipment, and the equipment sold for $350,000. All other assets sold for $308,000. Distribute the $658,000 in asset liquidation proceeds. (15 points)
Current Assets $ 60,000 Accounts Payable $ 120,000
Equipment 100,000 Wages Payable 150,000
Plant & Property 840,000 Taxes Payable 140,000
Mortgage Bonds 300,000
Preferred Stock 50,000
Common Stock 150,000
__________ Retained Earnings ___ 90,000
Total $1,000,000 Total $1,000,000
Explanation / Answer
In the asset liquidation process, the assets are distributed on the basis of priority of claims. The first in line is the liquidator's fees for administering the bankruptcy then comes secured creditors. ie mortagae which have charge on some asset then comes priority unsecured creditor which includes thoes who provide service to company such as trade payables and employees even tax payable can be consider as priority crediters and lastly the stock holders
Thus statement showing distribution of cash
Particulars Amount Distributable amount 658000 Less: Cost of administering the bankruptcy proceedings -50000 Mortgage Bonds -300000 Wages Payable -150000 Accounts Payable -120000 Taxes Payable -38000Related Questions
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