The following balance sheet has been produced for Litz Corporation as of August 8, 2011, the date on which the company is to begin selling assets as part of a corporate liquidation:
|
LITZ CORPORATION |
|
|
Assets |
|
|
Cash |
$16,000 |
|
Accounts receivable (net) |
82,000 |
|
Investments |
32,000 |
|
Inventory (net realizable value is expected to approximate cost) |
69,000 |
|
Land |
30,000 |
|
Buildings (net) |
340,000 |
|
Equipment (net) |
210,000 |
|
Total assets |
$779,000 |
|
Liabilities and Equities |
|
|
Accounts payable |
$150,000 |
|
Notes payable—current (secured by inventory) |
132,000 |
|
Notes payable—long term (secured by land and buildings [valued at $300,000]) |
259,000 |
|
Common stock |
135,000 |
|
Retained earnings |
103,000 |
|
Total liabilities and equities |
$779,000 |
The following events occur during the liquidation process:
• The investments are sold for $39,000.
• The inventory is sold at auction for $48,000.
• The money derived from the inventory is applied against the current notes payable.
• Administrative expenses of $15,000 are incurred in connection with the liquidation.
• The land and buildings are sold for $315,000. The long-term notes payable are paid.
• The accountant determines that $34,000 of the accounts payable are liabilities with priority.
• The company’s equipment is sold for $84,000.
• Accounts receivable of $34,000 are collected. The remainder of the receivables is considered uncollectible.
• The administrative expenses are paid.
a. Prepare a statement of realization and liquidation for the period just described.
b. What percentage of their claims should the unsecured creditors receive?