Question

Smith Inc is a small manufacturer located in Goobertown, AR. They have come into some bad luck and have decided to file for Chapter 7 Bankruptcy Protection. The Company has assets consisting of cash in the bank of $1,045.12, inventory of $9,227.01, equipment of $298,017.45, and real estate of $565,188.92.

The liabilities of the company include the following: utility bills for $2,003.56, credit card bills for $192,716.28, taxes owed of $201,155.87, a loan from the bank secured by the real estate for $850,000, legal fees of $17,816.08, and back wages for the previous month owed totaling $24,000.

The company has no preferred stock but has 10,000 shares of common stock.

How much will each party receive at the bankruptcy?

Answer 1

Total Assets of Company = Cash in bank + Inventory + Equipment + Real Estate

= 1045.12 + 9227.01 + 298017.45 + 564,188.92 = $873,478.5

Out of the above amount money will be paid off for Credit card bills and utility bills are not given priority on payment

so they will not receive payments and legal fees might not be paid, common stock holders will receive nothing.

Priority is given to secured debtor

Income Tax is paid first = $201,155.87,

Wages for previous month needs to be paid = $24,000,
Loan from banks need sto be repaid = 873,73,478.50 - 201,155.87 - 24,000 = $648,322.12