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

h. Show the relationship of amount received to total amount of claim in a similar fashion to that of Table 16A-5. Remember to use the sales (liquidation) value for machinery and equipment plus the allocation amount in part g to arrive at the total received on secured debt.

Short answer

The percentage of liabilities satisfied is secured debt – 86.67%, accounts payables – 60%, unsecured debt - 100%, subordinated debentures – 8.23%.

Step-by-step solution

Information provided in question

Total liquidation value of assets left after deducting administrative costs, unpaid taxes, and satisfying first lien = $4,200,000

Total liquidation value of liabilities after partial cover of first lien = $7,000,000

Allocation ratio = 60%

Table showing percentage of claim satisfied

Category	Total amount of claim	Amount received	Percent of claim satisfied
Unsatisfied secured debt	$900,000	$780,000	86.67%
Accounts payable	$2,800,000	$1,680,000	60%
Senior unsecured debt	$2,200,000	$2,200,000	100%
Subordinated debenture	$1,700,000	$140,000	8.23%