Deere, Inc. will be liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets will be sold for $4,000,000 and current assets will be sold for $3,000,000. All fixed assets are pledged as collateral for all mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $750,000. Before Before Default Balance SheetDefaultCurrent Assets5,000,000 Accounts payable 1,000,000 Net fixed assets 7,000,000 Accrued taxes 50,000 Accrued wages 85,000 Notes payable 2,000,000 Total current liabilities 3,135,000 First-mortgage bonds 2,000,000 Second-mortgage bonds 3,000,000 Subordinated debentures 5,000,000 Common stock 300,000 Retained earnings (1,435,000)Total assets 12,000,000 Total claims 12,000,000 a. How much will SHs receive?b. How much will mortgage bondholders receive?c. How much will priority creditors receive?d. Identify the remaining general creditors. How much will each receive before subordination adjustment?e. How much will each general creditor receive after subordination adjustment?

Chapter 7 bankruptcy allows liquidation of assets to pay creditors. Unsecured priority debt is paid…

Answered: Deere, Inc. will be liquidated under…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Deere, Inc. will be liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets will be sold for $4,000,000 and current assets will be sold for $3,000,000. All fixed assets are pledged as collateral for all mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $750,000.

	Before		Before
	Default	Balance Sheet	Default
Current Assets	5,000,000	Accounts payable	1,000,000
Net fixed assets	7,000,000	Accrued taxes	50,000
		Accrued wages	85,000
		Notes payable	2,000,000
		Total current liabilities	3,135,000
		First-mortgage bonds	2,000,000
		Second-mortgage bonds	3,000,000
		Subordinated debentures	5,000,000
		Common stock	300,000
		Retained earnings	(1,435,000)
Total assets	12,000,000	Total claims	12,000,000

a. How much will SHs receive?

b. How much will mortgage bondholders receive?

c. How much will priority creditors receive?

d. Identify the remaining general creditors. How much will each receive before subordination adjustment?

e. How much will each general creditor receive after subordination adjustment?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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