The answer for this question is below, but I cannot figure out how they arrived

Question

The answer for this question is below, but I cannot figure out how they arrived at this.

Southwestern Wear Inc. has the following balance sheet:

Current assets $1,875,000 Accounts payable $375,000
Fixed assets 1,875,000 Notes payable 750,000
Subordinated debentures 750,000
Total Debt $1,875,000
Common equity 1,875,000
Total assets $3,750,000 Total liabilities and equity $3,750,000

The trustee’s costs total $281,250, and the firm has no accrued taxes on wages. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received from the sale of the assets?

Answer: AP=$375,000; NP=$750,000; SD=$750,000; Stockholders=$343,750

Explanation / Answer

Total funds received $2,500,000 Less: Trustee’s cost $281,250 Balance available for Investors $2,218,750 Less: Payment to Accounts payable 375,000 Notes Payable 750,000 Subordinated debentures 750,000 $1,875,000 Balance available for stock holder $ 343,750 ========

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.