Question: The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.

Assets
	Book value	Liquidation value
Accounts receivables	\(1,400,000	\)1,200,000
Inventory	\(1,800,000	\)900,000
Machinery and equipment	\(1,100,000	\)600,000
Building and plant	\(4,200,000	\)2,500,000
Total assets	\(8,500,000	\)5,200,000

Liabilities and stockholder’s claims
Liabilities
Accounts payable	\(2,800,000
First lien, secured by machinery and equipment	\)900,000
Senior unsecured debt	\(2,200,000
Subordinated debenture	\)1,700,000
Total liabilities	\(7,600,000
Stockholder’s claims
Preferred stock	\)250,000
Common stock	\(650,000
Total stockholder’s claims	\)900,000
Total liabilities and stockholder’s claims	$8,500,000

e. List the remaining asset claims of unsatisfied secured debt holders and unsecured debt holders in a manner similar to that shown at the bottom portion of Table16A-3.

Step by step solution

01

Information provided in question

Total liquidation value of assets = $5,200,000

Total liquidation value of liabilities = $7,600,000

Administrative costs and unpaid taxes = $400,000

02

Table showing unsatisfied claims

The value of unsatisfied claims is $7,000,000.

Secured debt (unsatisfied first lien )	$300,000
Accounts payable	$2,800,000
Senior unsecured debt	$2,200,000
Subordinated debentures	$1,700,000
Total unsatisfied claims	$7,000,000

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