Distribution in Bankruptcy. Hover Company’s balance sheet follows:
ASSETS
Current assets $1,200,000
Land 3,000,000
Plant and equipment 2,400,000
Total assets $6,600,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 500,000
Notes payable 1,200,000
Accrued taxes 300,000
Total current liabilities $2,000,000
Noncurrent liabilities
Mortgage bonds $1,800,000a
Debentures 1,000,000
Total noncurrent liabilities 2,800,000
Total liabilities $4,800,000
Stockholders’ equity
Preferred stock $ 500,000
Common stock 1,300,000
Total stockholders’ equity 1,800,000
Total liabilities and stockholders’ equity $6,600,000
“Mortgage bonds are secured against plant and equipment.
The liquidation value for the total assets is $4 million, $1.2 million of which was received for plant and equipment. Bankruptcy costs were $150,000. Determine the distribution of the proceeds.