Question

Mandich Co. had the following amounts for its assets, liabilities, and stockholders' equity accounts just before filing a bankruptcy petition and requesting liquidation: Book Value Net Realizable Value Cash $ 10,000 $ 10,000 Accounts receivable 100,000 60,000 Inventory 350,000 350,000 Land 110,000 75,000 Building and equipment 700,000 300,000 Accounts payable 100,000 Salaries payable 70,000 Notes payable (secured by inventory) 300,000 Employees’ claims for contributions to pension plans 10,000 Taxes payable 80,000 Liability for accrued expenses 25,000 Bonds payable 500,000 Common stock 200,000 Additional paid-in capital 100,000 Retained earnings (deficit) (115,000 ) Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount was owed to salaried employees who had not been paid within the previous 80 days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed for any one employee's claims for contributions to benefit plans was $800. Estimated expense for administering the liquidation amounted to $40,000. What amount would the company have expected to pay for every dollar of unsecured liability without priority?

Multiple Choice

$.30.

$.40.

$.50.

$.60.

$.75.

Answer 1

Answer -

	Particulars	Explanation	Amount ($)
I.	Assets available for priority claims and unsecured creditors	Cash + Accounts receivable + Inventory + Land = $10000 + $60000 + $350000 + $75000	495000
II.	Priority claims	Pension + Salaries + Taxes + Liquidation expenses = $10000 + $35000 + $80000 + $40000	165000
III.	Assets available for nonpriority unsecured creditors	I - II = $495000 - $165000	330000
Amount that company have expected to pay for every dollar of unsecured liability without priority		III / (I + II) = $330000 / ($495000 + $165000)	0.50

Hence, Option - (C) is Correct.