Distribution in Bankruptcy. Blake Corporation is bankrupt. The book and liquidation values of its assets follow.
Book Value Liquidation Value
Cash $ 500,000 $ 500,000
Cash $ 500,000 $ 500,000
Inventory 3,400,000 2,200,000
Land 4,700,000 3,500,000
Building 8,000,000 5,600,000
Equipment 7,000,000 3,000,000
Total assets $25,300,000 $16,200,000
The liabilities and stockholders’ equity at the liquidation date follow.
Current liabilities
Accounts payable $2,000,000
Notes payable 1,000,000
Accrued taxes 700,000
Accrued taxes 700,000
Total current liabilities $ 4,100,000
Long-term liabilities
Mortgage on land $3,500,000
First mortgage—building 4,000,000
Second mortgage—building 1,600,000
Subordinated debentures 4,500,000
Total long-term liabilities 13,600,000
Total liabilities $17,700,000
Stockholders’ equity
Preferred stock $4,500,000
Common stock 6,500,000
Retained earnings (3,400,000)
Total stockholders’ equity 7,600,000
Total liabilities and stockholders’ equity $25,300,000
“ The salary owed to each worker is below $2,000 and was incurred within 90 days of the bankruptcy petition.
Expenses associated with the bankruptcy administration were 12 percent of the proceeds. The debentures are subordinated only to the two first-mortgage bonds.
Determine the distribution of the proceeds.