Reference no: EM13343580
At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet shown below (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $370,000, while the current assets were sold for another $310,000. Thus, the total proceeds from the liquidation sale were $680,000. The trustee's costs amounted to $70,000; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities.
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Current assets
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$ 400
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Account payable
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$ 50
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Net fixed assets
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600
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Accrued taxes
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40
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Accrued wages
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30
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Notes payable
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180
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Total current liabilities
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$ 300
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First-mortgage bonds*
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300
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Second-mortgage bonds*
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200
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Debentures
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200
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Subordinated debentures**
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100
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Common stock
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50
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Retained earnings
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-150
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Total assets
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$1,000
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Total claims
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$1,000
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Notes:
*All fixed assets are pledged as collateral to the mortgage bonds.
**Subordinated to notes payable only.
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a. How much will McDaniel's shareholders receive from the liquidation? Round your answer to the nearest dollar.
$ ________
b. How much will the mortgage bondholders receive? Round your answer to the nearest dollar.
$ ________
c. How much will other priority claimants receive from the liquidation? Round your answers to the nearest dollar.
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Claimant
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Amount
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Trustee's expenses
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$ ________
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Workers' wages due
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$ ________
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Governments' taxes due
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$ ________
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Total
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$ ________
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d. How much will the remaining general creditors receive from the distribution before subordination adjustment? Round your answers to the nearest dollar.
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Account
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Amount Received
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Accounts payable
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$ ________
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Notes payable
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$ ________
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Second mortgage bonds
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$ ________
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Debentures
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$ ________
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Subordinated debentures
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$ ________
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Total
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$ ________
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What is the effect of adjusting for subordination? Round your answers to the nearest dollar.
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Account
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Amount Received after
subordination adjustment
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Notes payable
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$ ________
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Subordinated debentures
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$ ________
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