FINANCE-Duchon Industries had the following balance sheet

12/8/2012

Chapter:
24

Problem:
5

Duchon Industries had the following balance sheet at the time it
defaulted on its interest payments and filed for liquidation under Chapter
7. Sale of the fixed assets, which
were pledged as collateral to the mortgage bondholders, brought in $900
million, while the current assets were sold for another $400 million. Thus, the total proceeds from the
liquidation sales were $1,300 million.
Trustee’s costs amounted to $1 million; no single worker was due more
than $2,000 in wages; and there were no unfunded pension plan liabilities.
Determine the amount available for distribution to all claimants.

Balance
Sheets (Millions of Dollars)

Assets

Current assets

$700

Net fixed assets

1,300

Total assets

$2,000

Liabilities
and equity

Accounts payable

$80

Accrued taxes

80

Accrued wages

70

Notes payable

400

Total current liabilities

$630

First-mortgage
bondsa

700

Second-mortgage
bondsa

300

Debentures

500

Subordinated
debenturesb

200

Common stock

100

Retained Earnings

(430)

Total claims

$2,000

a All fixed assets are pledged as collateral to the mortgage
bonds.

b Subordinated to notes payable only.

Other
inputs (in thousands of dollars):

Proceeds
from sale of fixed assets =

$900

Proceeds
from sale of current assets =

$401

Trustee’s costs =

$1

Total
claims (including trustee expenses)

Total
cash from liquidation

Amount
available for distribution to shareholders

Initital Distribution to Priority Claimants

Priority claims:

Trustee’s
expenses

Worker’s
wages due

Government
taxes due

Distribution
to first mortgage (paid from sale of fixed assets)

Remaining proceeds from sale of fixed assets after satisfying
first mortgage holders

Distribution to second mortgage (paid from sale of fixed assets
after satisfying first mortgage holders)

Remaining proceeds from sale of fixed assets after satisfying
first and second mortgage holders

Total
preliminary distributions to priority claimaints

Total
of satisfied priority claims

Total
unsastified claims from all claimants

Funds
available for distribution to general creditors:

Pro
rata distribution percentage

Distributions
due to general claims:

Distribution after Subordination Adjustment

Remaining Unsatisfied Claim

Amount of Claim
Pro Rata Distribution
Subordination Adjustment

Unsatisfied
first mortgage

Unsatisfied
second mortgage

Accounts payable

Notes payable

Debentures

Subordinated
debentures

Total

Total
distributions (including prior distributions to mortgage holders and
subordination adjustment):

Percent of Claim Satisfied

Total Distribution
Original Claim

First mortgage

$700

Second mortgage

$300

Accounts payable

$80

Notes payable

$400

Debentures

$500

Subordinated
debentures

$200

 

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