Question

A company preparing for a Chapter 7 liquidation has the following liabilities: Note payable A of $138,000 secured by land having a book value of $74,000 and a fair value of $94,000. Note payable B of $168,000 secured by a building having a $84,000 book value and a $64,000 fair value. Note payable C of $84,000, unsecured. Administrative expenses payable of $44,000. Accounts payable of $144,000. Income taxes payable of $54,000. The company also has these other assets: Cash of $34,000. Inventory of $148,000 but with a net realizable value of $84,000. Equipment of $138,000 but with a net realizable value of $74,000. How much will each of the company's liabilities be paid at liquidation?

Answer 1

Free assets available

Particulars	Amount
Cash	34,000
Inventory(Net realizable value)	84,000
Equipments(Net realizable value)	74,000
Total	1,92,000
Less: Laibilities with priorities
Administration expenses payable	(44,000)
Income taxes payable	(54,000)
Net Free asset available	94,000

unsecured laibilities

Accounts payable 1,44,000

Note Payable A( unsecured; 1,38,000-94,000) 44,000

Note Payable B( Unsecured; 1,68,000-64,000) 1,04,000

Note Payable C(unsecured) 84,000

Total 3,76,000

{Percentage of unsecured Laibilities paid is 94,000/3,76,000= 25%}

Amount Paid to each of the company laibilities are

Administration expenses payable(Full)	44,000
Income tax payable(Full)	54,000
Accounts Payable( 25% *1,44,000)	36,000
Note payable A unsecured ( 25%*44,000) Add: Note payable A secured	11,000 94,000
Note payable B Unsecured (25%*1,04,000) Note payable B Secured	26,000 64,000
Note payable C (25%*84,000)	21,000
Total	3,50,000