The Walston Company is to be liquidated and has the following liabilities: Incom
ID: 2391766 • Letter: T
Question
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?
Explanation / Answer
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.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.