Question

In: Accounting

The Walston Company is to be liquidated and has the following liabilities: Income taxes $ 3,900...

The Walston Company is to be liquidated and has the following liabilities:

Income taxes $ 3,900

Notes payable (secured by land) 126,000

Accounts payable 88,000

Salaries payable (evenly divided between two employees) 7,000

Bonds payable 73,000

Administrative expenses for liquidation 23,000

The company has the following assets:

Current assets $ 83,000 $ 38,000 (Book Value, Fair Value)

Land 103,000 93,000

Buildings and equipment 103,000 122,000

How much money will the holders of the notes payable collect following liquidation?

Expert Solution

Total fair value of free assets = Current Assets+Building and Equipment

= $38,000+$122,000 = $160,000

Total Liabilities with priority = Administrative Exp. for liquidation+Salaries Payable+Income Taxes

= $23,000+$7,000+$3,900 = $33,900

Free Assets after payment of liabilities with priority = $160,000 - $33,900 = $126,100

Secured Notes Payable = $93,000 (upto the fair value of land)

Total unsecured liabilities = Unsecured Notes Payable+Accounts Payable+Bonds Payable

= ($126,000 - $93,000)+$88,000+$73,000

= $33,000+$88,000+$73,000 = $194,000

Percentage on Unsecured liabilities to be paid = Remaining Free Assets/Total unsecured liabilities

= $126,100/$194,000 = 65%

Payment on Notes Payable = Value of security (land)+65% of remaining unsecured portion

= $93,000+($33,000*65%)

= $93,000+21,450 = $114,450

Therefore, total money collected by the holders of the notes payable following liquidation will be $114,450.

ekkarill92 answered 1 year ago

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