Please show all the steps in calculations for this liquidation. Detailed and clear answer greatly appreciated!
A company that was to be liquidated had the following liabilities:
LIABILITIES: Income taxes $10,400 Notes payable (secured by land) $156,000 Accounts payable $107,900 Salaries payable to employees ($15,000 for John Jay and $2,800 for Ann Still) $17,800 Bonds payable $81,000 Administrative expenses for liquidation $26,000
ASSETS: BOOK VALUE: Current assets $104,000 Land $130,000 Buildings & equipment $130,000 FAIR VALUE: Current Assets $42,900 Land $117,000 Buildings & equipment $143,000
What amount will unsecured creditors get on the dollar?
Answer:unsecured creditor get $ 0.72 aginst 1 $
Working notes for the above answer
Total free assets available for all unsecured liabilities are calculated As follow
| FAIR VALUE | |
| Current Assets | 42900 |
| Buildings & equipment | 143000 |
| 185900 |
Here Land is not cosidered because Notes payable is secured by land
| Liabilities with priority: | |
| Administrative expenses | 26000 |
| Salaries payable(Maximum of $10,950 per employee ; therefore $10,950 for John Jay and $2,800 for Ann Still) |
13750 |
| Income taxes | 10400 |
| Total | 50150 |
| Free assets after payment of liabilities with priority: | |
| Total free assets | 185900 |
| Total liabilities with priority | -50150 |
| Total | 135750 |
| Accounts Payable | 107900 |
| Bonds Payable | 81000 |
| 188900 | |
| Balnce Amount | 135750 |
| 0.718634198 |
So unsecured creditor get $ 0.72 aginst 1 $
