Reference no: EM13538673
Distribution in Bankruptcy. The balance sheet of Larkin Corporation is shown below.
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ASSETS
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Current assets
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|
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Cash
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$7,000
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|
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Marketable securities
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5,000
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Receivables
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1,000,000
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Inventory
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2,800,000
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|
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Prepaid expenses
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3,500
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Total current assets
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$3,815,500
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Noncurrent assets
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|
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Land
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$1,700,000
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Fixed assets
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2,200,000
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Total noncurrent assets
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3,900,000
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Total assets
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$7,715,500
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LIABILITIES AND
STOCKHOLDERS' EQUITY
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Current liabilities
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Accounts payable
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$ 200,000
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Bank loan payable
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950,000
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Accrued salaries
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250,000a
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Employee benefits payable
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80,000b
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Customer claims-unsecured
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70,000c
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Taxes payable
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300,000
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Total current liabilities
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$1,850,000
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Noncurrent liabilities
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First-mortgage payable
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$1,700,000
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Second-mortgage payable
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1,200,000
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Subordinated debentures
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600,000
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Total noncurrent liabilities
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3,500,000
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Total liabilities
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$5,350,000
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Stockholders' equity
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|
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Preferred stock
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$ 400,000
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Common stock
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490,000
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Paid-in capital
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1,400,000
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Retained earnings
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75,500
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Total stockholders' equity
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2,365,500
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Total liabilities and stockholders' equity
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$7,715,500
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a The salary owed to each worker is below $2,000 and was incurred within 90 days of the bankruptcy petition.
b Employee benefits payable have the same limitations as unsecured wages and satisfy for eligibility in bankruptcy distribution.
c No customer claim is greater than $900.
Additional data are as follows:
1. The mortgages relate to the firm's total noncurrent assets.
2. The subordinated debentures are subordinated to the bank loan payable.
3. The trustee has sold the current assets for $2 million and the noncurrent assets for $1.8 million.
4. The administration expense related to bankruptcy proceedings was $700,000.
Determine the distribution of the proceeds.