Faced with an inability to meet its current debt payments, The Selbert Company entered bankruptcy on April
Question:
Faced with an inability to meet its current debt payments, The Selbert Company entered bankruptcy on April 30, 2020. The appointed trustee will liquidate the company and pay the creditors in accordance with the provisions of the bankruptcy laws. Selbert’s balance sheet on April 30, 2020, following normal GAAP, shows the following: THE SELBERT COMPANY Balance Sheet April 30, 2020 Assets Liabilities and equity Cash $3,200 Accounts payable $131,900 Accounts receivable 71,000 Loan payable to bank 60,000 Notes receivable 50,000 Notes payable to suppliers 83,900 Inventories 108,600 Accrued wages 94,700 Prepaid expenses 17,200 Accrued taxes 70,000 Land and buildings, net 172,000 Mortgage payable 195,000 Equipment, net 113,500 Common stock 100,000 Goodwill, net 28,000 Retained earnings (172,000) Total assets $563,500 Total liabilities and equity $563,500 Additional information:
1. The trustee estimates that 60 percent of the accounts receivable will be collected, and she has agreed to settle the notes receivable for $42,500. The notes receivable serve as collateral for the loan payable to the bank.
2. The inventories will likely be sold to a competitor, at 40 percent of book value.
3. Other than a $2,000 insurance refund, no recovery of prepaid items is expected.
4. Appraised at $300,000, the land and buildings are pledged as security on the mortgage.
5. The equipment is expected to be sold for $40,000.
6. The notes payable to the suppliers are unsecured.
7. Accrued wages do not exceed statutory limits per employee.
Required Compute the following:
a. Estimated net loss on asset dispositions. Do not use a negative sign with your answer. $Answer
b. Amount of priority claims. $Answer
c. Estimated payments to fully and partially secured creditors. $Answer
d. Expected recovery percentage to unsecured creditors. Round answer to one decimal place (ex: 0.2345 = 23.5%).
Financial Accounting A User Perspective
ISBN: 978-0470676608
6th Canadian Edition
Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry