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Duchon Industries had the following balance sheet at the time it
defaulted
on its interest payments and filed for liquidation under Chapter 7.
Sale of the fixed
assets, which were pledged as collateral to the mortgage
bondholders, brought in
$900 million, while the current assets were sold for another $401
million. Thus, the
total proceeds from the liquidation sales were $1,300 million. The
trustee’s costs
amounted to $1 million; no single worker was due more than $2,000
in wages; and
there were no unfunded pension plan liabilities. Determine the
amount available for
distribution to shareholders and all claimants
Duchon Industries’s Balance Sheets (Millions of Dollars)
Current assets $ 400 Accounts payable $ 50
Net fixed assets 600 Accrued taxes 40
Accrued wages 30
Notes payable 180
Total current liabilities $ 300
First-mortgage bondsa 300
Second-mortgage bondsa 200
Debentures 200
Subordinated debenturesb 100
Common stock 50
Retained earnings (150)
Total assets $1,000 Total claims $1,000

Notes
aAll fixed assets are pledged as collateral to the mortgage bonds.
bSubordinated to notes payable only.

                                               4/19/2010          
                    
	                                                                  
    
Chapter 22.  Ch 22-5 Build a Model                                 
                                            
	                                                                  
    
	                                                                  
    
Duchon Industries had the following balance sheet at the time it
defaulted on its interest payments and filed for liquidation under
Chapter 7.  Sale of the fixed assets, which were pledged as
collateral to the mortgage bondholders, brought in $900 million,
while the current assets were sold for another $400 million.  Thus,
the total proceeds from the liquidation sales were $1,300 million. 
Trustee's costs amounted to $1 million; no single worker was due
more than $2,000 in wages; and there were no unfunded pension plan
liabilities. Determine the amount available for distribution to all
claimants.                                                         
                   
	                                                                  
    
	                                                                  
    
	                                                                  
    
	                                                                  
    
	                                                                  
    
	                                                                  
    
Balance Sheets (Millions of Dollars)                               
                                            
Assets                                                             
            
Current assets                                  $700               
                        
Net fixed assets                                        1,300      
                            
Total assets                                    $2,000             
                        
	                                                                  
    
Liabilities and equity                                             
                            
Accounts payable                                        $80        
                        
Accrued taxes                                   80                 
                    
Accrued wages                                   70                 
                    
Notes payable                                   400                
                    
   Total current liabilities                                   
$630                                        
First-mortgage bondsa                                   700        
                            
Second-mortgage bondsa                                  300        
                            
Debentures                                      500                
                    
Subordinated debenturesb                                        200
                                    
Common stock                                    100                
                    
Retained Earnings                                       (430)      
                            
Total claims                                    $2,000             
                        
	                                                                  
    
a All fixed assets are pledged as collateral to the mortgage bonds.
                                                                   
        
b Subordinated to notes payable only.                              
                                            
	                                                                  
    
Other inputs (in thousands of dollars):                            
                                            
	                                                                  
    
Proceeds from sale of fixed assets =                               
    $900                                        
Proceeds from sale of current assets =                             
    $401                                        
Trustee's costs =                                   $1             
                    
	                                                                  
    
Total claims (including trustee expenses)                          
                                                    
Total cash from liquidation                                        
                                    
Amount available for distribution to shareholders                  
                                                            
	                                                                  
    
	                               Initital Distribution to Priority
Claimants                                     
	                                                                  
    
	                                                                  
    
Priority claims:                                                   
                            
	                                                                  
    
Trustee's expenses                                                 
                        
Worker's wages due                                                 
                        
Government taxes due                                               
                            
	                                                                  
    
Distribution to first mortgage (paid from sale of fixed assets)    
                                                                   

Remaining proceeds from sale of fixed assets after satisfying first
mortgage holders                                                   
                        
	                                                                  
    
Distribution to second mortgage (paid from sale of fixed assets
after satisfying first mortgage holders)                           
                                                    
	                                                                  
    
Remaining proceeds from sale of fixed assets after satisfying first
and second mortgage holders                                        
                                
	                                                                  
    
Total preliminary distributions to priority claimaints             
                                                            
	                                                                  
    
Total of satisfied priority claims                                 
                                            
Total unsastified claims from all claimants                        
                                                    
Funds available for distribution to general creditors:             
                                                            
Pro rata distribution percentage                                   
                                            
	                                                                  
    
Distributions due to general claims:                               
            Distribution after Subordination Adjustment            
                
	                       Remaining Unsatisfied Claim                
                            
	       Amount of Claim Pro Rata Distribution          
Subordination Adjustment                                        
	                                                                  
    
Unsatisfied first mortgage                                         
                                    
Unsatisfied second mortgage                                        
                                    
Accounts payable                                                   
                            
Notes payable                                                      
                    
Debentures                                                         
                    
Subordinated debentures                                            
                            
	                                                                  
    
Total                                                              
            
	                                                                  
    
Total distributions (including prior distributions to mortgage
holders and subordination adjustment):                             
                                             
	                                                                  
    
	                       Percent of Claim Satisfied                 
                            
	       Total Distribution      Original Claim                     
                            
	                                                                  
    
First mortgage                  $700                               
                        
Second mortgage                 $300                               
                        
Accounts payable                        $80                        
                        
Notes payable                   $400                               
                        
Debentures                      $500                               
                        
Subordinated debentures                 $200                       
                                
	                                       

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