Question

hello experts! i am looking for some help with this financial accounting question! thank you so so much!

Problem 24-01 Liquidation Southwestern Wear Inc. has the following balance sheet: Current assets $1,875,000 Accounts payable $375,000 Fixed assets 1,875,000 Notes payable 750,000 Subordinated debentures 750,000 Total debt $1,875,000 Common equity 1,875,000 Total assets $3,750,000 Total liabilities and equity $3,750,000 The trustee's costs total $251,750, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $3.5 million is received from sale of the assets? Distribution of proceeds on liquidation: 1. Proceeds from sale of assets 2. First mortgage, paid from sale of assets $ 3. Fees and expenses of administration of bankruptcy $ 4. Wages due workers earned within 3 months prior to filing of bankruptcy petition 5. Taxes 6. Unfunded pension liabilities 7. Available to general creditors $ Distribution to general creditors: Claims of General Application of 100 % After Subordination Percentage of Original Creditors Claim Distribution Adjustment Claims Received (1) (2) (3) (4) Notes payable $ 100 % Accounts payable $ 100 % Subordinated 100 % $ debentures Total $ The remainings will go to the common stockholders

Answer 1

Southwestern Wear INC Note No Amount 3,248,250 Particulars 1 Proceeds from sale of assets 2 First mortgage, paid from sale of assets 3 Fees and expenses of administration of bankruptcy Wages due workers earned within 3 months prior to filing of 4 bankruptcy petition 5 Taxes 6 Unfunded pension liabilities | 7 Available to general creditors 1 (2+3+4+5+6) 3,248,250 Distribution to general creditors Claims of Claim Application of After Percentage of General 100% Subordination Original Claim creditors distribution Adjustment Received Notes Payable 100% 750,000 750,000 750,000 Accounts 100% Payable 375,000 375,000 375,000 Subordinated 100% Debentures 750,000 750,000 750.000 Total 1,875,0 1,875,000 1,875,000 00 The remaining amount of $13,73,250 will go to common creditors. ($32,48,250 less $18,75,000 as above) Notel: The amount of sales of assets as above has been calculated as follows: Particulars Amoun Sales of Assets 35,00,0 00 2,51,75 Less: Trustees Total Cost Net sales from assets 32,48, 250