Buggy Whip Industries is being liquidated under Chapter 7 of the bankruptcy code. When it filed for bankruptcy, its balance sheet was a follows:
*Bank loan is unsecured
**Mortgage bonds are secured by land and buildings
Assume that the liquidation is a voluntary petition, that no unpaid contributions to employee benefit plans exist, and that no customer layaway deposits are involved. The proceeds from the liquidation of the company's assets are as follows:

Bankruptcy administration charges are $2,500,000. Determine the amount that the mortgage bondholders will receive in this liquidation.

Question

Buggy Whip Industries is being liquidated under Chapter 7 of the bankruptcy code. When it filed for bankruptcy, its balance sheet was a follows: 
*Bank loan is unsecured
**Mortgage bonds are secured by land and buildings
Assume that the liquidation is a voluntary petition, that no unpaid contributions to employee benefit plans exist, and that no customer layaway deposits are involved. The proceeds from the liquidation of the company's assets are as follows:

Bankruptcy administration charges are $2,500,000. Determine the amount that the mortgage bondholders will receive in this liquidation.

Quizplus · Accepted Answer

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Settlement percentage to general creditors = $14,000,000/$28,000,000 = 0.5
Payment to mortgage bondholders = $5,000,000 + 0.5($3,000,000) = $6,500,000

Buggy Whip Industries Is Being Liquidated Under Chapter 7 of the Bankruptcy