Olds Company declares Chapter 7 bankruptcy. The following are the asset and liability book values at that time. Administrative expenses are estimated to be $12,000: Cash $ 24,000 Accounts receivable 60,000 (worth $28,000) Inventory 70,000 (worth $56,000) Land (secures note A) 200,000 (worth $160,000) Building (secures bonds) 400,000 (worth $320,000) Equipment 120,000 (worth unknown) Accounts payable 180,000 Taxes payable to government 20,000 Note payable A 170,000 Note payable B 250,000 Bonds payable 300,000 The holders of note payable B want to collect at least $125,000. To achieve this goal, how much does the company have to receive in the liquidation of its equipment?

$128,000

Explanation:

The computation of liquidation of its equipment is shown below:-

Land                                 $160,000

Less: Notes payable        $170,000

Unsecured creditors balance                0

Building                             $320,000

Less: Bonds payable        $300,000

Total                                                      $20,000

Assets free

Cash                                                       $24,000

Accounts receivable                              $28,000

Inventory                                                 $56,000

Less: Liabilities with priority                   $32,000

($12,000 + $20,000)

Unsecured creditors available               $96,000

So, total unsecured liabilities

Accounts payable            $180,000

Note payable A                  $10,000

($170,000 - $160,000)

Note payable B                 $258,000

Total unsecured liabilities  $448,000

Collection of company for notes payable B = collection of note payable B - Unsecured creditors available

= $125,000 - $96,000

= $29,000

By taking total unsecured liabilities, then it has to be collect

= ($448,000 × 50%) - $96,000

= $128,000

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