Distribution in Bankruptcy. The balance sheet of Larkin Corporation is shown below.
|
ASSETS |
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|
Current assets |
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|
Cash |
$7,000 |
|
|
Marketable securities |
5,000 |
|
|
Receivables |
1,000,000 |
|
|
Inventory |
2,800,000 |
|
|
Prepaid expenses |
3,500 |
|
|
Total current assets |
$3,815,500 |
|
|
Noncurrent assets |
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|
Land |
$1,700,000 |
|
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Fixed assets |
2,200,000 |
|
|
Total noncurrent assets |
3,900,000 |
|
|
Total assets |
$7,715,500 |
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
Current liabilities |
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|
Accounts payable |
$ 200,000 |
|
|
Bank loan payable |
950,000 |
|
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Accrued salaries |
250,000a |
|
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Employee benefits payable |
80,000b |
|
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Customer claims—unsecured |
70,000c |
|
|
Taxes payable |
300,000 |
|
|
Total current liabilities |
$1,850,000 |
|
|
Noncurrent liabilities |
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|
First mortgage payable |
$1,700,000 |
|
|
Second mortgage payable |
1,200,000 |
|
|
Subordinated debentures |
600,000 |
|
|
Total noncurrent liabilities |
3,500,000 |
|
|
Total liabilities |
$5,350,000 |
|
|
Stockholders’ equity |
||
|
Preferred stock |
$ 400,000 |
|
|
Common stock |
490,000 |
|
|
Paid in capital |
1,400,000 |
|
|
Retained earnings |
75,500 |
|
|
Total stockholders’ equity |
2,365,500 |
|
|
Total liabilities and stockholders’ equity |
$7,715,500 |
a The salary owed to each worker is below $2,000 and was incurred within 90 days of the bankruptcy petition.
b Employee benefits payable have the same limitations as unsecured wages and satisfy for eligibility in bankruptcy distribution.
c No customer claim is greater than $900.
Additional data are as follows:
1. The mortgages relate to the firm’s total noncurrent assets.
2. The subordinated debentures are subordinated to the bank loan payable.
3. The trustee has sold the current assets for $2 million and the noncurrent assets for $1.8 million.
4. The administration expense related to bankruptcy proceedings was $700,000.
Determine the distribution of the proceeds.