Problem: 5
Balance Sheets (Millions of Dollars)
Assets
Current assets $700
Net fixed assets 1,300
Total assets $2,000
a All fixed assets are pledged as collateral to the mortgage bonds.
b Subordinated to notes payable only.
Other inputs (in thousands of dollars):
Proceeds from sale of fixed assets = $900
Proceeds from sale of current assets = $401
Trustee’s costs = $1
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.
Worker’s wages due $70
Government taxes due $80
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
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%
Distribution
after
Subordination
Adjustment
Subordinatio
n Adjustment
Total
Distribution
Percent of
Claim
Satisfied
Remaining
Unsatisfied
Claim
Amount of
Claim
Distribution to first mortgage (paid from sale of fixed assets) $700
Total preliminary distributions to priority claimaints $1,051