Solution
Chapter: 24
Problem: 5
Balance Sheets (Millions of Dollars)
Assets
Current assets $700
Net fixed assets 1,300
Total assets $2,000
Liabilities and equity
First-mortgage bondsa700
Second-mortgage bondsa300
Debentures 500
Subordinated debenturesb200
Common stock 100
Retained Earnings (430)
Total claims $2,000
a All fixed assets are pledged as collateral to the mortgage bonds.
b Subordinated to notes payable only.
Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed
for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage
bondholders, brought in $900 million, while the current assets were sold for another $400 million. Thus, the
total proceeds from the liquidation sales were $1,300 million. Trustee’s costs amounted to $1 million; no
single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities.
Determine the amount available for distribution to all claimants.
Amount available for distribution to shareholders $0
Priority claims:
Trustee’s expenses $1
Worker’s wages due $70
Government taxes due $80
Distribution to first mortgage (paid from sale of fixed assets) $700
$200
$200
$0
Total preliminary distributions to priority claimaints $1,051
Total of satisfied priority claims $1,051
Total unsastified claims from all claimants $1,280
Funds available for distribution to general creditors: $250
Pro rata distribution percentage 19.5%
Distributions due to general claims:
Unsatisfied first mortgage $0 $0.00 $0.00
Unsatisfied second mortgage $100 $19.53 $80.47
Accounts payable $80 $15.63 $64.38
Notes payable $400 $78.13 $321.88 $39.06
Debentures $500 $97.66 $402.34
Subordinated debentures $200 $39.06 $160.94 -$39.06
Total $1,280 $250 $1,030
Total distributions (including prior distributions to mortgage holders and subordination adjustment):
First mortgage $700.00 $700 100%
Second mortgage $219.53 $300 73%
Accounts payable $15.63 $80 20%
Notes payable $117.19 $400 29%
Subordinated debentures $0.00 $200 0%
Remaining proceeds from sale of fixed assets after satisfying
first and second mortgage holders
Initital
Distribution
to Priority
Claimants
Subordinatio
n Adjustment
Remaining proceeds from sale of fixed assets after satisfying
first mortgage holders
Distribution to second mortgage (paid from sale of fixed assets
after satisfying first mortgage holders)
Remaining
Unsatisfied
Claim
Amount of
Claim
Pro Rata
Distribution
Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed
for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage
bondholders, brought in $900 million, while the current assets were sold for another $400 million. Thus, the
total proceeds from the liquidation sales were $1,300 million. Trustee’s costs amounted to $1 million; no
single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities.
Determine the amount available for distribution to all claimants.
Distribution
after
Subordination
Adjustment