Question

Pasten Corporation is liquidating under Chapter 7 of the Bankruptcy Act. The accounts of Pasten at the time of filing are summarized as follows:

Estimated

Realizable

Book Value Value

Cash $ 65,000 $ 65,000

Accounts receivable-net 15,000 13,000

Inventory 280,000 190,000

Land 20,000 28,000

Building 210,000 220,000

Goodwill 595,000 0

$ 1,185,000

Accounts payable $ 800,000

Wages and salaries 21,000

Taxes payable 12,000

Accrued mortgage interest payable 16,000

Mortgage payable 304,000

Capital stock 100,000

Deficit (68,000)

$ 1,185,000

The land and building are pledged as security for the mortgage payable as well as any accrued interest on the mortgage. Wages and salaries were earned within 90 days of filing the bankruptcy petition and do not exceed $10,000 per employee. Liquidation expenses are expected to be $35,000.

Required:

1. Prepare a schedule showing the priority rankings of the creditors and the expected payouts.

2. Yuomi Corporation was a supplier to Pasten Corporation and at the time of Pasten's bankruptcy filing, Yuomi's account receivable from Pasten was $500,000. On the basis of the estimates, how much can Yuomi expect to receive?

Answer

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