Magic Mobile Homes is to be liquidated. All creditors,both secured and unsecured,are owed $2 million. Administrative costs of liquidation and wage payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%. How much and what percentage of their claim will the secured creditors receive,in total?

Question

Quizplus · Accepted Answer

The total amount available for distribution is:
$1.8 million (sale of assets)
- $360,000 (34% of $1.2 million owed to secured creditors)
= $1,440,000

From this amount, $500,000 will be used for administrative costs and wage payments, leaving $940,000 for distribution to creditors.

The secured creditors will receive $900,000 from the sale of the factory. This leaves $40,000 for distribution to unsecured creditors.

Therefore, the secured creditors will receive a total of $900,000, which is 75% of the $1,200,000 they are owed.

Therefore, the answer is (C) $1,009,091; 84.1%.

Magic Mobile Homes Is to Be Liquidated