Question

Chesterfield Company holds cash of $67,000, inventory worth $124,000, and a building worth $147,000. Unfortunately, the company also has accounts payable of $197,000, a note payable of $97,000 (secured by the inventory), liabilities with priority of $47,200, and a bond payable of $184,000 (secured by the building).

In a Chapter 7 bankruptcy, how much money will the holder of the bond expect to receive?

Answer 1

Step-1: Calculation of Avilable assets and liabilities:
Cash	$67,000
Inventory	$1,24,000
Building	$1,47,000
Total Available Asset	$3,38,000
Accounts payable	$1,97,000
Note Payable	$97,000	Secured by Inventory
Liabilities	$47,200	With priority
Bond Payable	$1,84,000	Secured by Building
Total Liabilities to be paid	$5,25,800

Step-2: Determination of payment plan:
Stage of Payment in case of bankruptcy
1	Liabilities with Priority
2	Secured Debt
3	Unsecured debt

Step-3: Payment of debt with priority and secured debt
Debt		Paid from Cash	Balance Debt	Closing Cash
Liabilities With Priority	$47,200	$67,000	$0	$19,800
		Paid from realisation of Inventory		Closing Amount of Inventory
Notes Payable	$97,000	$1,24,000	$0	$27,000
		Paid from realisation of Building		Closing Amount of Building
Bonds Payable	$1,84,000	$1,47,000	$37,000	0

Step-4:Calculation of remaining unsecured debt and Assets
Unsecured Liabilities:
Bonds Payable	$37,000
Accounts Payable	$1,97,000
Total	$2,34,000
Remaining Assets:
Cash	$19,800
Realisation from Inventory	$27,000
Net Asset Available	$46,800

Step-5: Calculation of proprtionate distribution:
Proportionate distribution:
Bonds Payable	46800*37/234	$7,400
Accounts Payable	46800*197/234	$39,400

Step-6: Calculation of amount received by bond holders
Secured part	$1,47,000
Unsecured Part	$7,400
Total	$1,54,400

Thus, holders of bond can expect tp receive $ 154400