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4.  Problem 24-01 (Liquidation)

Liquidation

Southwestern Wear Inc. has the following balance sheet:

Current assets $1,875,000        Accounts payable$   375,000

Fixed assets 1,875,000             Notes payable 750,000  

                                                       Subordinated debentures750,000             

                                                             Total debt$1,875,000   

                                                               Common equity1,875,000

Total assets$3,750,000                 Total liabilities & equity$3,750,000

The trustee’s costs total $317,250, 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 $3.0 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$  ?_______________

Distribution to general creditors:

(1) is General Creditors’ Claims  (2) is Amount of Claim  (3) is Application of 100% Distribution (4) is Distribution after Subordination Adjustment  (5) is Percentage of Original Claim Received

                                               1                                   2                           3                              4                                   5

Accounts payable             $————-                   $__________             $—————–          $—————–                   $——————–

Notes payable                   $————-                   $__________             $—————–          $—————–                   $——————– 

Subordinated                     $————-                   $__________             $—————–          $—————–                   $——————– 

debentures              

Total                               $___________                $ _____________         $______________   

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.