Consider Failures Galore Inc using the following tables:

Balance Sheet, Failures Galore, Inc.*
Assets	Liabilities and Equity
Current assets		$	7,400,000		Accounts payable		$	2,000,000
Fixed assets, net			6,500,000		Bank notes payable			2,000,000
					Accrued wages			400,000
					Accrued taxes			500,000
					Mortgage bonds			2,000,000
					Debentures			2,000,000
					Subordinated debentures			2,000,000
					Preferred stock			1,500,000
					Common equity			1,500,000
Total assets		$	13,900,000		Liabilities and equity		$	13,900,000
*The subordinated debentures are subordinate to the bank notes payable. Assume that all the accrued wages can be paid out of the liquidation proceeds.

Distribution of the Proceeds from the Liquidation of Failures Galore, Inc.
Total liquidation proceeds		$6,500,000
	1. Bankruptcy administration expenses		$700,000
	2. Wages owed to employees		400,000
	3. Taxes owed to governments		500,000
Total priority claims		$1,600,000
Funds available for claims of creditors		$4,900,000
	4. Payment to mortgage bondholders (proceeds from sale of secured assets)		1,500,000
Funds available for claims of general and unsecured creditors		$3,400,000

Settlement percent for general and unsecured creditors 3400000/8500000 = 40%

		=
		=
		=	40%

		Settlement,	Settlement,
		40% of Claim	40% of Claim
		(Before Subordination	(After Subordination
	Total Claim	Adjustment)	Adjustment)
Accounts payable		$	2,000,000		$	800,000		$	800,000
Bank notes payable			2,000,000			800,000			1,600,000
Mortgage bonds			500,000			200,000			200,000
Debentures			2,000,000			800,000			800,000
Subordinated debentures			2,000,000			800,000			0
		$	8,500,000		$	3,400,000		$	3,400,000
Funds available for preferred and common stockholders	$0

If total liquidation proceeds are $6.075 million, what is the distribution of these proceeds among the various creditors of Failures Galore? Round your answers to the nearest dollar.

	Settlement,
	(After Subordination Adjustment)
Accounts payable		$
Bank notes payable		$
Mortgage bonds		$
Debentures		$
Subordinated debentures		$
		$

Funds available for preferred and common stockholders: $

If total liquidation proceeds are $6.925 million, what is the distribution of these proceeds among the various creditors of Failures Galore? Round your answers to the nearest dollar.

	Settlement,
	(After Subordination Adjustment)
Accounts payable		$
Bank notes payable		$
Mortgage bonds		$
Debentures		$
Subordinated debentures		$
		$

Funds available for preferred and common stockholders: $

Answer rating: 100% (QA)

Here are the distributions of liquidation proceeds for the two scenarios given If tota... View the full answer