Question

Mark owns 10% of the total shares of a corporation. The corporation goes out of business and liquidates its assets. They receive $130,000 for the assets. The corporation has $70,000 worth of debts that must be paid. How much cash will Mark be entitled to after the debts of the corporation are settled?

Answer 1

Liquidation: When a corporation goes into liquidation then first payment is made to its secured shareholders, then preferential creditors, then outside general creditors, and any leftover is distributed among shareholders.

Mark is a 10% shareholder of a corporation, and the corporation goes into liquidation.

Corporation receives from the sale of its assets = $130,000

Less: Outside creditors of corporation that must be paid = 70,000

Balance left after the payment of outside creditors = $60,000

Mark share from the remaining Cash = x 10%

Amount of money received by Mark from Corporation = 60000 x 10% = $6,000