Distribution in Bankruptcy. The balance sheet of Larkin Corporation is shown below.
ASSETS
Current assets
Cash $7,000
Marketable securities 5,000
Receivables 1,000,000
Inventory 2,800,000
Prepaid expenses 3,500
Total current assets $3,815,500
Noncurrent assets
Land $1,700,000
Fixed assets 2,200,000
Total noncurrent assets 3,900,000
Total assets $7,715,500
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 200,000
Bank loan payable 950,000
Accrued salaries 250,000
Employee benefits payable 80,000b
Customer claims—unsecured 70,000c
Taxes payable 300,000
Total current liabilities $1,850,000
Noncurrent liabilities
First-mortgage payable $1,700,000
Second-mortgage payable 1,200,000
Subordinated debentures 600,000
Total noncurrent liabilities 3,500,000
Total liabilities $5,350,000
Stockholders’ equity
Preferred stock $ 400,000
Common stock 490,000
Paid-in capital 1,400,000
Retained earnings 75,500
Total stockholders’ equity 2,365,500
Total liabilities and stockholders’ equity $7,715,500
a
The salary owed to each worker is below $2,000 and was incurred within 90 days of the bankruptcy petition.
b
Employee benefits payable have the same limitations as unsecured wages and satisfy for eligibility in bankruptcy distribution.
c
No customer claim is greater than $900.
Additional data are as follows:
1. The mortgages relate to the firm’s total noncurrent assets.
2. The subordinated debentures are subordinated to the bank loan payable.
3. The trustee has sold the current assets for $2 million and the noncurrent assets for $1.8 million.
4. The administration expense related to bankruptcy proceedings was $700,000.
Determine the distribution of the proceeds.