Question

Take the following list of securities and arrange them in order of their priority of claims: (LO16-1)

Preferred stock Senior debenture

Subordinated debenture Senior secured debt

Common stock Junior secured debt

Short answer

According to the priority of claims, secured debts are settled first, and then other claims are paid.

Step-by-step solution

Funds

Funds refer to the pool of money collected by the corporations to function their business operations. The primary sources of funds collection are the issuance of stocksand bonds.

Order of claims’ settlement

The order of settling the claims according to the priority should be:

• Senior secured debt
• Junior secured debt
• Senior debenture
• Subordinate debenture
• Preferred stock
• Common stock

According to the settlement of claims order, those categories should be paid first with which assets are pledged.