Assets Liabilities and Equity Cash $40,000 Accounts payable $200,000 Accounts receivable 200,000 Accrued wages 50,000 Secured bank
Question:
Assets Liabilities and Equity
Cash $40,000 Accounts payable $200,000
Accounts receivable 200,000 Accrued wages 50,000
Secured bank loan 150,000
Unsecured bank loan 250,000
Inventory 400,000 Mortgage 300,000
Plant and equipment 360,000 Subordinated debentures 60,000
Junior subordinated debentures 40,000
Common stock 50,000
Retained earnings (100,000)
The firm defaults and the only solution is a liquidate, so the question becomes how much each claimant receive.
A buyer is found for the receivable for $0.70 per $1.00.
The inventory, which secures the bank loan, can be sold for $0.50 on the $1.00.
The plant and equipment, which secures the mortgage, are sold for $250,000.
The payables are equally subordinated to both bank loans.
The subordinated debentures are subordinated to the mortgage.
The junior subordinated debentures are subordinated to the subordinated debentures.
Court costs, pension costs have previously been covered.
If the absolute order of claims is maintained, how much do the holders of each general creditors receive?
- Accounts receivable
- Accounts payable
- Accrued wages
- Secured bank loan
- Unsecured bank loan
- Mortgage
- Subordinated debentures
- Junior subordinated debentures
- Common stock
ALSO
Would your previous answers be different if the senior subordinated debentures were not subordinate to the mortgage (i.e., not subordinated)?
Expert Answer:
Cornerstones of Managerial Accounting
ISBN: 978-0324660135
3rd Edition
Authors: Mowen, Hansen, Heitger
