Quincy Corp., about to be liquidated, has the following amounts for its assets a

Question

Quincy Corp., about to be liquidated, has the following amounts for its assets and liabilities:

The mortgage is secured by the land and building, and the note payable is secured by the equipment. Quincy expects that the expenses of administering the liquidation will total $40,000. How much should Quincy expect to pay on the accounts payable? A. $240,000. B. $128,000. C. $120,000. D. $96,000. E. $146,000.

Solution: Assets available for priority claims and unsecured creditors $220,000 - priority claims $100,000 = $120,000

$120,000/$300,000 unsecured = payment of 40% on unsecured dollars.
40% × $240,000 A/P = $96,000

My question is how to get the $220,000 and $100,000? Thank you!

Explanation / Answer

1. Mortgage payable of $ 510,000 is secured by Land and Building (Total Net Realisable Value 450000)- Hence fully exhausted.

2. Note payable of $ 80,000 is secured by Equipment of $ 160,000. Hence surplus of $ 80,000 is available.

3. Current assets of $ 140,000 is available.

Hence, total available is Current assets + Equipment surplus(After Note payable)

= 140000 + 80,000 = $ 220,000

Priority Claims - Income tax $ 60,000 plus liquidation administering costs $ 40,000 = $ 100,000.

Amount available after priority claims =220000-100000= 120000 (for unsecured creditors)

Total unsecured creditors= Accounts payables 240000 + Bal mortgage payable( 510000-450000)=60000= 300000

So, Amount Quincy expect to pay on the accounts payable= 120000/300000*240000= $ 96000 (ANSWER :D)

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