Statement of realization and liquidation, unsecured creditors with and without priority. The past several years have been extremely difficult for Avery Manufacturing Company, Inc. During this time, the company lost significant market share and was successfully sued with respect to several product liability cases. In response to those problems, the company filed a voluntary petition to liquidate the company on May 15, 20X9, at which time the company had the following condensed trial balance:
|
Cash |
$ 30,000 |
|
|
Noncash assets |
2,958,000 |
|
|
Liabilities: |
||
|
Fully secured |
|
$1,720,000 |
|
Partially secured |
|
762,000 |
|
Unsecured—with priority |
|
20,000 |
|
Unsecured—without priority |
|
230,000 |
|
Owners’ equity |
|
256,000 |
|
Total |
$2,988,000 |
$2,988,000 |
The bankruptcy court issued an order of relief on June 1, 20X9. The following liquidation transaction occurred through July 15, 20X9:
a. The inventory of raw materials was disposed of as follows:
|
Cost |
Fair |
|
|
Returned to fully secured vendors |
$180,000 |
$180,000 |
|
Sold to liquidations broker |
70,000 |
50,000 |
|
Transferred to work in process |
40,000 |
40,000 |
|
$290,000 |
$270,000 |
b. Work in process with a cost prior to liquidation of $117,000 was completed with the addition
of the following costs:
|
Raw materials per (a) |
$40,000 |
|
Additional unpaid labor (individually less than $4,000) |
17,000 |
|
Overhead: |
|
|
Depreciation |
1,000 |
|
Additional liabilities incurred |
4,000* |
|
$62,000 |
These debts were incurred between May 17, 20X9, and May 28, 20X9.
The finished work in process was sold for $160,000.
c. Remaining finished goods with a cost of $204,000 were sold to a liquidation broker for
$154,000.
d. The company’s Indiana manufacturing facility, which had a net book value of $1,240,000, was sold for $1,000,000. The $800,000 mortgage on the property and related accrued interest of $34,000 were paid off with the sales proceeds.
e. The company’s warehouse with a net book value of $430,000 and an appraised value of $380,000 was assigned to the bank that held the $450,000 mortgage on the property.
f. Equipment with a net book value of $450,000 was sold at auction for $330,000. Lenders with equipment loans of $272,000, including accrued interest, received $220,000 upon sale of the equipment. Leased equipment was returned to the lessors and the company forfeited $15,000 in lease deposits.
g. Unassigned accounts receivable were realized as follows:
|
Book |
Fair |
|
|
Collected in full |
$ 72,000 |
$72,000 |
|
Written off: |
|
|
|
Against a $30,000 allowance |
30,000 |
0 |
|
In excess of allowance |
14,000 |
0 |
|
$116,000 |
$72,000 |
h. Assigned accounts receivable totaling $40,000 were disposed of as follows:
|
Collected in full |
$32,000 |
|
Returned to the company with recourse |
8,000 |
i. Expenses totaling $14,000 have been incurred by the trustee.
j. The company was just assessed another $15,000 of property taxes, which brings the total amount of taxes owed to governmental units to $35,000.
1. Prepare a statement of realization and liquidation for the period June 1, 20X9, to July 15, 20X9.
2. Determine the amount to be paid to unsecured creditors with and without priority assuming the remaining noncash assets have a net realizable value of (a) $10,000 and (b) $64,000. If only unsecured creditors with priority will receive a distribution, indicate which specific class of creditors will be paid.