Question

12/8/2012

Chapter:

24

Problem:

5

Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $900 million, while the current assets were sold for another $400 million. Thus, the total proceeds from the liquidation sales were $1,300 million. Trustee's costs amounted to $1 million; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities. Determine the amount available for distribution to all claimants.

Balance Sheets (Millions of Dollars)

Assets

Current assets

$700

Net fixed assets

1,300

Total assets

$2,000

Liabilities and equity

Accounts payable

$80

Accrued taxes

80

Accrued wages

70

Notes payable

400

Total current liabilities

$630

First-mortgage bondsa

700

Second-mortgage bondsa

300

Debentures

500

Subordinated debenturesb

200

Common stock

100

Retained Earnings

(430)

Total claims

$2,000

a All fixed assets are pledged as collateral to the mortgage bonds.

b Subordinated to notes payable only.

Other inputs (in thousands of dollars):

Proceeds from sale of fixed assets =

$900

Proceeds from sale of current assets =

$401

Trustee's costs =

$1

Total claims (including trustee expenses)

Total cash from liquidation

Amount available for distribution to shareholders

Initital Distribution to Priority Claimants

Priority claims:

Trustee's expenses

Worker's wages due

Government taxes due

Distribution to first mortgage (paid from sale of fixed assets)

Remaining proceeds from sale of fixed assets after satisfying first mortgage holders

Distribution to second mortgage (paid from sale of fixed assets after satisfying first mortgage holders)

Remaining proceeds from sale of fixed assets after satisfying first and second mortgage holders

Total preliminary distributions to priority claimaints

Total of satisfied priority claims

Total unsastified claims from all claimants

Funds available for distribution to general creditors:

Pro rata distribution percentage

Distributions due to general claims:

Distribution after Subordination Adjustment

Remaining Unsatisfied Claim

Amount of Claim

Pro Rata Distribution

Subordination Adjustment

Unsatisfied first mortgage

Unsatisfied second mortgage

Accounts payable

Notes payable

Debentures

Subordinated debentures

Total

Total distributions (including prior distributions to mortgage holders and subordination adjustment):

Percent of Claim Satisfied

Total Distribution

Original Claim

First mortgage

$700

Second mortgage

$300

Accounts payable

$80

Notes payable

$400

Debentures

$500

Subordinated debentures

$200

Answer 1