Liquidation Southwestern Wear Inc. has the following balance sheet: $1,875,000 Accounts payable 1,875,000 Notes payable Current assets Fixed assets Subordinated debentures Total debt Common equity Total assets $3,750,000 Total liabilities & equity The trustee's costs total $346,000, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goe bankrupt and liquidates, how much will each class of investors receive if a total of $2.3 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for percentage values to the nearest whole number. If your answer is zero, enter "0". Enter your answers as positive values. Distribution of proceeds on liquidation: Proceeds from the sale of assets Less: 1. First mortgage (paid from the sale of fixed assets) 2. Fees and expenses of bankruptcy 3. Wages due to workers within 3 months of bankruptcy 4. Taxes due to federal, state, and local governments 5. Unfunded pension liabilities Funds available for distribution to general creditors $ $ 375,000 750,000 750,000 $ $1,875,000 1,875,000 $3,750,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Question

Accounting

Liquidation
Southwestern Wear Inc. has the following balance sheet:
$1,875,000 Accounts payable
1,875,000
Notes payable
Current assets
Fixed assets
Subordinated debentures
Total debt
Common equity
$3,750,000 Total liabilities & equity
Total assets
The trustee's costs total $346,000, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes
bankrupt and liquidates, how much will each class of investors receive if a total of $2.3 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for
percentage values to the nearest whole number. If your answer is zero, enter "0". Enter your answers as positive values.
Distribution of proceeds on liquidation:
Proceeds from the sale of assets
Less:
1. First mortgage (paid from the sale of fixed assets)
2. Fees and expenses of bankruptcy
3. Wages due to workers within 3 months of bankruptcy
4. Taxes due to federal, state, and local governments
5. Unfunded pension liabilities
Funds available for distribution to general creditors
$
$ 375,000
750,000
750,000
$
$1,875,000
1,875,000
$3,750,000
Transcribed Image Text:Liquidation Southwestern Wear Inc. has the following balance sheet: $1,875,000 Accounts payable 1,875,000 Notes payable Current assets Fixed assets Subordinated debentures Total debt Common equity $3,750,000 Total liabilities & equity Total assets The trustee's costs total $346,000, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.3 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for percentage values to the nearest whole number. If your answer is zero, enter "0". Enter your answers as positive values. Distribution of proceeds on liquidation: Proceeds from the sale of assets Less: 1. First mortgage (paid from the sale of fixed assets) 2. Fees and expenses of bankruptcy 3. Wages due to workers within 3 months of bankruptcy 4. Taxes due to federal, state, and local governments 5. Unfunded pension liabilities Funds available for distribution to general creditors $ $ 375,000 750,000 750,000 $ $1,875,000 1,875,000 $3,750,000
Distribution to general creditors:
General Creditors'
Claims
(1)
Accounts payable
Notes payable
Subordinated
debentures
Total
Amount of Claim
(2)
$
$
Application of 100%
Distribution
(3)
$
$
Distribution after
Subordination
Adjustment
(4)
$
$
Percentage of
Original Claim
Received
(5)
Round your answer for monetary value to the nearest dollar and for percentage value to two decimal places.
The remaining $
will go to the common stockholders. They will receive only
%
% of the amount of equity on the balance sheet.
Transcribed Image Text:Distribution to general creditors: General Creditors' Claims (1) Accounts payable Notes payable Subordinated debentures Total Amount of Claim (2) $ $ Application of 100% Distribution (3) $ $ Distribution after Subordination Adjustment (4) $ $ Percentage of Original Claim Received (5) Round your answer for monetary value to the nearest dollar and for percentage value to two decimal places. The remaining $ will go to the common stockholders. They will receive only % % of the amount of equity on the balance sheet.
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