Olds Company declares Chapter 7 bankruptcy. The following are the asset and liab

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:

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?

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

Explanation / Answer

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

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]

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

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