Loose Leaf Advanced Accounting with Connect Access Card
12th Edition
ISBN: 9781259184741
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 51P
Holmes Corporation has filed a voluntary petition with the bankruptcy court in hopes of reorganizing. A statement of financial affairs has been prepared for the company showing these debts:
Liabilities with priority: | |
Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 18,000 |
Fully secured creditors: | |
Notes payable (secured by land and buildings valued at $84,000) . . | 70,000 |
Partially secured creditors: | |
Notes payable (secured by inventory valued at $30,000) . . . . . . . . . . . | 140,000 |
Unsecured creditors: | |
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 50,000 |
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 10,000 |
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4,000 |
Holmes has 10,000 shares of common stock outstanding with a par value of $5 per share. In addition, it is currently reporting a deficit balance of $132,000.
Company officials have proposed the following reorganization plan:
- The company’s assets have a total book value of $210,000, an amount considered to be equal to fair value. The reorganization value of the assets as a whole, though, is set at $225,000.
- Employees will receive a one-year note in lieu of all salaries owed. Interest will be 10 percent, a normal rate for this type of liability.
- The fully secured note will have all future interest dropped from a 15 percent rate, which is now unrealistic, to a 10 percent rate.
- The partially secured note payable will be satisfied by signing a new 6-year $30,000 note paying 10 percent annual interest. In addition, this creditor will receive 5,000 new shares of Holmes’s common stock.
- An outside investor has been enlisted to buy 6,000 new shares of common stock at $6 per share.
- The unsecured creditors will be offered 20 cents on the dollar to settle the remaining liabilities.
If this plan of reorganization is accepted and becomes effective, what
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The Sunshine Company has the following data in connection with its bankruptcy petition with the Securities and Exchange Commission at the end of 2018.
Unsecured creditorsP287.500.
Liabilities with priority137,500
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Debt 1, P262,500; value of pledged asset 225,000
Debt 2, P212,500, value of pledged asset 125,000
Debt 3, P150,000, value of pledged asset 175,000'
The company also has a number of other assets that are not pledge in any way, The creditors holding Debt 2 want to receive at least P177,50
Required: For how much do these free assets have to be sold so that Debt 2 would receive exactly P177,500.
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Chapter 13 Solutions
Loose Leaf Advanced Accounting with Connect Access Card
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