Go-for-Broke Company is being liquidated under Chapter 7 of the bankruptcy code. When it filed for bankruptcy, its balance sheet was as follows:
All accrued wages must be paid out of the liquidation proceeds.
**The bank loan is unsecured.
***Mortgage bonds are secured by land and buildings.
Assume that the liquidation is a voluntary petition, that no unpaid contributions to employee benefit plans exist, and that no customer layaway deposits are involved. The proceeds from the liquidation of the company's assets are as follows:
Current assets ........ $9,425,000
Land and buildings ..... 3,045,000
Equipment ........ 4,130,000
Total ........... $16,600,000
Bankruptcy administration charges are $643,750.
a. Determine the distribution (dollar amount and percentage) of the liquidation proceeds among the various creditors of Go-for-Broke.
b. Assume that the debentures ($2.45 million) are subordinated to bank notes payable. Determine the distribution (dollar amount and percentage) of the liquidation proceeds among the various creditors of Go-for-Broke.