(Solution) 12/8/2012 Chapter: Problem: 24 5 Duchon Industries Had The Following Balance Sheet At The Time It Defaulted On Its Interest Payments And Filed For... | Snapessays.com


(Solution) 12/8/2012 Chapter: Problem: 24 5 Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed for...


Bankruptcy, Reorganization, and LiquidationCan anyone help me with this problem?12/8/2012

 

Chapter:

 

24

 

Problem:

 

5

 

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

 

700

 

300

 

Debentures

 

500

 

200

 

Common stock

 

100

 

Retained Earnings

 

(430)

 

Total claims

 

$2,000

 

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

 

Priority claims:

 

Trustee's expenses

 

Worker's wages due

 

Government taxes due

 

Distribution to first mortgage (paid from sale of fixed assets)

 

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:

 

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):

 

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.

 

First-mortgage bonds

 

a

 

Second-mortgage bonds

 

a

 

Subordinated debentures

 

b

 

a

 

All fixed assets are pledged as collateral to the mortgage bonds.

 

b

 

Subordinated to notes payable only.

 

Initital

 

Distribution to

 

Priority

 

Claimants

 

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

 

Distribution

 

after

 

Subordination

 

Adjustment

 

Remaining

 

Unsatisfied

 

Claim

 

Amount of

 

Claim

 

Pro Rata

 

Distribution

 

Subordination

 

Adjustment

 


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This question was answered on: May 23, 2022

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