Question

Olds Company declares Chapter 7 bankruptcy. The following are the asset and liability book values at that time. Administrative expenses are estimated to be $20,000:

Cash	$	32,000
Accounts receivable		68,000	(worth $36,000)
Inventory		78,000	(worth $64,000)
Land (secures note A)		208,000	(worth $168,000)
Building (secures bonds)		408,000	(worth $336,000)
Equipment		128,000	(worth unknown)
Accounts payable		188,000
Taxes payable to government		28,000
Note payable A		186,000
Note payable B		258,000
Bonds payable		308,000

The holders of note payable B want to collect at least $129,000.

To achieve this goal, how much does the company have to receive in the liquidation of its equipment?

Answer 1

Collection of Asset (other than equipment ) and payment of secured and priority liabilities

	Asset collected and available for unsecured	Secured	Unsecured Liabilities
cash	32000
Accounts receivable	36000
Inventory	64000
Land	18000	(168000)	18000               [186000-168000]
Building	28000        [336000-308000]	(308000)	0
Equipment	X
Total cash available	178000+ x
Taxe to govenment	(28000)
Amount left to unsecured liabilities	150000+x
Accounts payable			188000
Note payable A			18000
Note payable B			258000 (out of which atleast 129000 tobe collected)
Total unsecured liabilities			464000

Amount left for unsecured creditors * Ratio of note payable B /Total unsecured creditors = 129000

[150000+X]*258000/464000=129000

[150000+x] * .5560=129000

83400+.5560x =129000

.5560x = 129000-83400

.5560x = 45600

x = 45600/.5560

= $ 82014.39   [approx 82000]

Amount of equipment = $ 82014 [rounded to 82000]