LYNCH, INCORPORATED Statement of Realization and Liquidation March 14, 2024 to July 23, 2024 Cash Noncash Assets Liabilities with Priority Fully Secured Creditors Partially Unsecured Stockholders' Secured Nonpriority Equity Creditors Liabilities (Deficits) Book balances, 3/14/24 $ 1,000 Accounts receivable collected-remaining balance assumed to be uncollectible 18,000 Inventory sold 40,000 Accounts payable discovered 10,000 Land and buildings all sold Fully secured note paid Equipment sold Payment made on partially secured debt Investments sold Administrative expenses accrued Remaining partially secured claims reclassified as unsecured liabilities Final balances remaining for unsecured creditors 71,000 (70,000) 11,000 (11,000) 21,000 20,000 (70,000) (11,000) $ 81,000 $ 0 $ 20,000 $ (70,000) $ (11,000) $ 10,000 $ 0 Lynch, Incorporated, is a hardware store operating in Boulder, Colorado. Management recently made several poor Inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The following is a trial balance as of March 14, 2024, the day the company files for a Chapter 7 liquidation: General Journal Accounts payable Accounts receivable Accumulated depreciation, building Accumulated depreciation, equipment Additional paid-in capital Advertising payable Building Cash Common stock Equipment Inventory Investments Land Note payable-Colorado Savings and Loan (secured by lien on land and building) Note payable-First National Bank (secured by equipment) Payroll taxes payable Retained earnings (deficit) Salaries payable (owed equally to two employees) Totals Debit Credit $ 33,000 $ 25,000 50,000 16,000 8,000 4,000 80,000 1,000 50,000 30,000 100,000 15,000 10,000 70,000 150,000 1,000 126,000 5,000 $ 387,000 $ 387,000 Assume that the company will be liquidated and the following transactions will occur. • Accounts receivable of $18,000 are collected with remainder written off. • All of the company's Inventory is sold for $40,000. • Additional accounts payable of $10,000 Incurred for various expenses, such as utilities and maintenance, are discovered. • The land and building are sold for $71,000. • The note payable due to the Colorado Savings and Loan is paid. ⚫ The equipment is sold at auction for only $11,000 with the proceeds applied to the note owed to the First National Bank. • The Investments are sold for $21,000. ⚫ Administrative expenses total $20,000 as of July 23, 2024, but no payment has been made yet. Required: a. Prepare a statement of realization and liquidation for the period from March 14, 2024, through July 23, 2024. b. How much cash would be paid to an unsecured, nonpriority creditor that Lynch, Incorporated, owes a total of $1,000?

LYNCH, INCORPORATED Statement of Realization and Liquidation March 14, 2024 to July 23, 2024 Cash Noncash Assets Liabilities with Priority Fully Secured Creditors Partially Unsecured Stockholders' Secured Nonpriority Equity Creditors Liabilities (Deficits) Book balances, 3/14/24 $ 1,000 Accounts receivable collected-remaining balance assumed to be uncollectible 18,000 Inventory sold 40,000 Accounts payable discovered 10,000 Land and buildings all sold Fully secured note paid Equipment sold Payment made on partially secured debt Investments sold Administrative expenses accrued Remaining partially secured claims reclassified as unsecured liabilities Final balances remaining for unsecured creditors 71,000 (70,000) 11,000 (11,000) 21,000 20,000 (70,000) (11,000) $ 81,000 $ 0 $ 20,000 $ (70,000) $ (11,000) $ 10,000 $ 0 Lynch, Incorporated, is a hardware store operating in Boulder, Colorado. Management recently made several poor Inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The following is a trial balance as of March 14, 2024, the day the company files for a Chapter 7 liquidation: General Journal Accounts payable Accounts receivable Accumulated depreciation, building Accumulated depreciation, equipment Additional paid-in capital Advertising payable Building Cash Common stock Equipment Inventory Investments Land Note payable-Colorado Savings and Loan (secured by lien on land and building) Note payable-First National Bank (secured by equipment) Payroll taxes payable Retained earnings (deficit) Salaries payable (owed equally to two employees) Totals Debit Credit $ 33,000 $ 25,000 50,000 16,000 8,000 4,000 80,000 1,000 50,000 30,000 100,000 15,000 10,000 70,000 150,000 1,000 126,000 5,000 $ 387,000 $ 387,000 Assume that the company will be liquidated and the following transactions will occur. • Accounts receivable of $18,000 are collected with remainder written off. • All of the company's Inventory is sold for $40,000. • Additional accounts payable of $10,000 Incurred for various expenses, such as utilities and maintenance, are discovered. • The land and building are sold for $71,000. • The note payable due to the Colorado Savings and Loan is paid. ⚫ The equipment is sold at auction for only $11,000 with the proceeds applied to the note owed to the First National Bank. • The Investments are sold for $21,000. ⚫ Administrative expenses total $20,000 as of July 23, 2024, but no payment has been made yet. Required: a. Prepare a statement of realization and liquidation for the period from March 14, 2024, through July 23, 2024. b. How much cash would be paid to an unsecured, nonpriority creditor that Lynch, Incorporated, owes a total of $1,000?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 17E

See similar textbooks