Question

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 $290,500, 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 $2.3 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for percentage values the nearest whole number. If your answer is zero, enter “0”. Enter your answers as positive values.

Distribution of proceeds on liquidation:

Proceeds from the sale of assets	$
Less:
1. First mortgage (paid from the sale of assets)
2. Fees and expenses of bankruptcy
3. Wages due to workers within 3 months of bankruptcy
4. Taxes due to federal, state, and local governments
5. Unfunded pension liabilities
Funds available for distribution to general creditors	$

Distribution to general creditors:

General Creditors’ Claims (1)	Amount of Claim (2)	Application of 100% Distribution (3)	Distribution after Subordination Adjustment (4)	Percentage of Original Claim Received (5)
Notes payable	$	$	$	%
Accounts payable
Subordinated debentures
Total	$	$	$

Round your answer for monetary value to the nearest dollar and for percentage value to two decimal places.

The remaining $   will go to the common stockholders. They will receive only   % of the amount of equity on the balance sheet.

Answer 1

1.

Proceeds from the sale of assets	2300000
Less:
1. First mortgage (paid from the sale of assets)
2. Fees and expenses of bankruptcy	290500
3. Wages due to workers within 3 months of bankruptcy
4. Taxes due to federal, state, and local governments
5. Unfunded pension liabilities
Funds available for distribution to general creditors	2009500

2.

General Creditors’ Claims (1)	Amount of Claim (2)	Application of 100% Distribution (3)	Distribution after Subordination Adjustment (4)	Percentage of Original Claim Received (5)
Notes payable	375000	375000	375000	100%
Accounts payable	750000	750000	750000	100%
Subordinated debentures	750000	750000	750000	100%
Total	1875000	1875000	1875000

3. The remaining $134,500   will go to the common stockholders. They will receive only   7.17% of the amount of equity on the balance sheet.