Question

4.   A firm’s balance sheet is given below. Liquidation bankruptcy has been initiated, and the cost of administering the bankruptcy proceedings is $50,000. The mortgage bonds were secured by the equipment, and the equipment sold for $350,000. All other assets sold for $308,000. Distribute the $658,000 in asset liquidation proceeds. (15 points)

Current Assets       $   60,000       Accounts Payable       $ 120,000

Equipment             100,000       Wages Payable         150,000   

Plant & Property         840,000       Taxes Payable         140,000

Mortgage Bonds         300,000                             

Preferred Stock          50,000  

Common Stock         150,000

               __________ Retained Earnings       ___ 90,000

Total               $1,000,000       Total               $1,000,000

Answer 1

In the asset liquidation process, the assets are distributed on the basis of priority of claims. The first in line is the liquidator's fees for administering the bankruptcy then comes secured creditors. ie mortagae which have charge on some asset then comes priority unsecured creditor which includes thoes who provide service to company such as trade payables and employees even tax payable can be consider as priority crediters and lastly the stock holders

Thus statement showing distribution of cash

Particulars	Amount
Distributable amount	658000
Less:
Cost of administering the bankruptcy proceedings	-50000
Mortgage Bonds	-300000
Wages Payable	-150000
Accounts Payable	-120000
Taxes Payable	-38000