Financial reporting during bankruptcy

The balance sheet of Everlast Window Corporation at June 30, 2011, contains the following
items:

Assets
Cash $ 40,000
Accounts receivable—net 70,000
Inventories 50,000
Land 30,000
Building—net 200,000
Machinery—net 60,000
Goodwill 50,000

m
er as
$500,000

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Equities

o.
Accounts payable $110,000
Wages payable rs e 60,000
ou urc
Property taxes payable 10,000
Mortgage payable 150,000
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Interest on mortgage 15,000

aC s

payable
vi y re

Note payable—unsecured 50,000

Interest payable—unsecured 5,000
ed d

Capital stock 200,000

ar stu

Retained earnings deficit (100,000

)
$500,000
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The company is in financial difficulty, and its stockholders and creditors have requested a
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statement of affairs for planning purposes. The following information is available:

1. The company estimates that $63,000 is the maximum amount collectible for the accounts
receivable.
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2. Except for 20% of the inventory items that are damaged and worth only $2,000, the cost of the
other items is expected to be recovered in full.
3. The land and building have a combined appraisal value of $170,000 and are subject to the
$150,000 mortgage and related accrued interest.
4. The appraised value of the machinery is $20,000.

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 5. Wages payable and property taxes payable are unsecured priority items that do not exceed any
limitations of the bankruptcy act.
REQUIRED
1. Prepare a statement of affairs for Everlast Window Corporation as of June 30, 2011.
2. Compute the estimated settlement per dollar of unsecured liabilities.
Solution:
1.

Everlast Window Corporation

Statement of Affairs as on June 30, 2011
Assets
Realizable
Realizable

m
Values –

er as
Book Value Values –
Particulars Offsets for
$ Unsecured

co
Secured

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Creditors
Creditors

o.
Mortgaged for Fully Secured Creditors:
rs e
ou urc
230,000 Land and Building 170,000 -
Less: Mortgage Payable and Interest Accrued (165,000) 5,000
o
aC s

Available for Preferred Creditors and

vi y re

Unsecured Creditors
40,000 Cash 40,000
70,000 Accounts Receivable – net 63,000
ed d

50,000 Inventories (50,000 * 80%) + $2,000 42,000

ar stu

60,000 Machinery – net 20,000

50,000 Goodwill -
is

Total Available for Preferred Creditors and

170,000
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Unsecured Creditors
Less: Preferred Creditors (70,000)
Total Available for Unsecured Creditors 100,000
sh

Estimated Deficiency 65,000

500,000 165,000

Liabilities and Shareholders’ Equity

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 Secured and
Book Value Unsecured
Particulars Preferred
$ Claims
Claims
Preferred Creditors
60,000 Wages Payable 60,000
10,000 Property Taxes Payable 10,000
Total Preferred Creditors 70,000

Fully Secured Creditors

150,000 Mortgage Payable 150,000
15,000 Interest Accrued 15,000

m
Total Fully Secured Creditors 165,000

er as
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Unsecured Creditors

o.
110,000 Accounts Payable 110,000
rs e
ou urc
50,000 Notes Payable – Unsecured 50,000
5,000 Interest Payable – Unsecured 5,000
o
aC s

Shareholders’ Equity
vi y re

200,000 Common Stock -

(100,000) Retained Earnings – Deficit -
ed d

500,000 165,000
ar stu

2. Calculation of Estimated per Dollar of Unsecured Liabilities:

= Payment to Accounts Payable and Notes Payable / Total Accounts Payable and Notes
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Payable
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= $100,000 / $160,000
= $0.625
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Payment for Interest payable- unsecured is not made.

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