Preparation of a statement of realization and liquidation. Problem 21-5 presents the balance sheet of St. John Corporation as of the end of the prior year. Assume that the company is not able to service its debts and is unable to secure any significant restructuring arrangements from its primary lenders. As a result, St. John has decided to liquidate the corporation and has submitted a plan for liquidation. The plan has received all necessary approvals, and the liabilities affected by the plan are described as follows:
Accounts payable: Of these accounts, $400,000 is fully secured by claims against inventory with a book value of $430,000. The inventory was completed at an additional cost of $25,000, it was sold for $480,000, and the secured payables were paid. Another $320,000 of the payables is secured by the remaining inventory which is estimated to have a net realizable value of $200,000. The balance of the payables is unsecured.
Note payable—officer: This note is secured by the investment in Sky Industries which has a net realizable value of $320,000.
Bank A note payable: This note is secured by all of the equipment and the patent. Equipment with a book value of $800,000 has been sold for $700,000 by a broker who was paid a fee of $10,000. It is estimated that the balance of the equipment will have a net realizable value of $400,000. The patent was sold to an officer of the corporation for $250,000. Net proceeds from the collateral were paid to Bank A.