FINANCE-Duchon Industries had the following balance sheet
QUESTION
12/8/2012
Chapter:
24
Problem:
5
Duchon Industries had the following balance sheet at the time it
defaulted on its interest payments and filed for liquidation under Chapter
7. Sale of the fixed assets, which
were pledged as collateral to the mortgage bondholders, brought in $900
million, while the current assets were sold for another $400 million. Thus, the total proceeds from the
liquidation sales were $1,300 million.
Trustee’s costs amounted to $1 million; no single worker was due more
than $2,000 in wages; and there were no unfunded pension plan liabilities.
Determine the amount available for distribution to all claimants.
Balance
Sheets (Millions of Dollars)
Assets
Current assets
$700
Net fixed assets
1,300
Total assets
$2,000
Liabilities
and equity
Accounts payable
$80
Accrued taxes
80
Accrued wages
70
Notes payable
400
Total current liabilities
$630
First-mortgage
bondsa
700
Second-mortgage
bondsa
300
Debentures
500
Subordinated
debenturesb
200
Common stock
100
Retained Earnings
(430)
Total claims
$2,000
a All fixed assets are pledged as collateral to the mortgage
bonds.
b Subordinated to notes payable only.
Other
inputs (in thousands of dollars):
Proceeds
from sale of fixed assets =
$900
Proceeds
from sale of current assets =
$401
Trustee’s costs =
$1
Total
claims (including trustee expenses)
Total
cash from liquidation
Amount
available for distribution to shareholders
Initital Distribution to Priority Claimants
Priority claims:
Trustee’s
expenses
Worker’s
wages due
Government
taxes due
Distribution
to first mortgage (paid from sale of fixed assets)
Remaining proceeds from sale of fixed assets after satisfying
first mortgage holders
Distribution to second mortgage (paid from sale of fixed assets
after satisfying first mortgage holders)
Remaining proceeds from sale of fixed assets after satisfying
first and second mortgage holders
Total
preliminary distributions to priority claimaints
Total
of satisfied priority claims
Total
unsastified claims from all claimants
Funds
available for distribution to general creditors:
Pro
rata distribution percentage
Distributions
due to general claims:
Distribution after Subordination Adjustment
Remaining Unsatisfied Claim
Amount of Claim
Pro Rata Distribution
Subordination Adjustment
Unsatisfied
first mortgage
Unsatisfied
second mortgage
Accounts payable
Notes payable
Debentures
Subordinated
debentures
Total
Total
distributions (including prior distributions to mortgage holders and
subordination adjustment):
Percent of Claim Satisfied
Total Distribution
Original Claim
First mortgage
$700
Second mortgage
$300
Accounts payable
$80
Notes payable
$400
Debentures
$500
Subordinated
debentures
$200
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