At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown here (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sale were $600,000. The trustee’s costs amounted to $50,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities. Balance Sheet (Thousands of Dollars) Current assets $   400  Accounts payable $50 Net fixed assets     600 Accrued taxes 40     Accrued wages 30     Notes Payable 180      Total current liabilities 300     First-mortgage bonds $300     Second-mortgage bonds 200     Debentures 200     Subordinated debenturesb 100     Common Stock 50     Retained earning (150) Total assets $1000 Total Liabilities and equity $1,000   d. Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation? e. Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? How much will each receive after subordination? How much in total will the second mortgage holders receive  (include the amount received from collateral).

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the balance sheet shown here (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sale were $600,000. The trustee’s costs amounted to $50,000; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities.

Balance Sheet (Thousands of Dollars)

Current assets $   400  Accounts payable $50
Net fixed assets     600 Accrued taxes 40
    Accrued wages 30
    Notes Payable 180
     Total current liabilities 300
    First-mortgage bonds $300
    Second-mortgage bonds 200
    Debentures 200
    Subordinated debenturesb 100
    Common Stock 50
    Retained earning (150)
Total assets $1000 Total Liabilities and equity $1,000

 

d. Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation?

e. Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment? How much will each receive after subordination? How much in total will the second mortgage holders receive  (include the amount received from collateral). 

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