At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown here (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sale were $600,000. The trustee’s costs amounted to $50,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities. Balance Sheet (Thousands of Dollars) Current assets $ 400 Accounts payable $50 Net fixed assets 600 Accrued taxes 40 Accrued wages 30 Notes Payable 180 Total current liabilities 300 First-mortgage bonds $300 Second-mortgage bonds 200 Debentures 200 Subordinated debenturesb 100 Common Stock 50 Retained earning (150) Total assets $1000 Total Liabilities and equity $1,000 a. How much will McDaniel’s shareholders receive from the liquidation? b. How much will the first mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim? c. How much will the second mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim?
At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown here (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sale were $600,000. The trustee’s costs amounted to $50,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities.
Balance Sheet (Thousands of Dollars)
| Current assets | $ 400 | Accounts payable | $50 |
| Net fixed assets | 600 | Accrued taxes | 40 |
| Accrued wages | 30 | ||
| Notes Payable | 180 | ||
| Total current liabilities | 300 | ||
| First-mortgage bonds | $300 | ||
| Second-mortgage bonds | 200 | ||
| Debentures | 200 | ||
| Subordinated debenturesb | 100 | ||
| Common Stock | 50 | ||
| (150) | |||
| Total assets | $1000 | Total Liabilities and equity | $1,000 |
a. How much will McDaniel’s shareholders receive from the liquidation?
b. How much will the first mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim?
c. How much will the second mortgage bondholders receive from collateralized assets? Will they receive their full claim? If not, how much is their remaining claim?
d. Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation?
e. Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? How much will each receive after subordination? How much in total will the second mortgage holders receive (include the amount received from collateral).
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