Solution P18-3

1 Ranking of claims:
Fully secured:
8. Holders of first mortgage and
related interest $228,500

Unsecured priority:
1. Administrative expenses $ 12,500
6. Wages payable up to $11,725 per
employee($48,000 – ($12,275 -
$11,725)) 47,450
7. Customer claims for merchandise
paid for and not delivered (maximum
$2,600 per individual) 1,500
5. State government for gross
receipts taxes $ 3,000
3. Local government for property
taxes 4,000 7,000
Total unsecured priority claims 68,450

Unsecured nonpriority:
2. Merchandise creditors $99,000
4. Local bank for principal of loan 30,000
6. President for salary due over
$11,725 550 129,550
4. Interest on unsecured bank loan 4,500
Total unsecured nonpriority claims 134,050

Total all claims $431,000

2 Distribution of available cash:

1st Mortgage holders (100%) $228,500

2nd Administrative expenses (100%) 12,500

3rd Employees (up to $11,725 each) (100%) 47,450

4th Customers for merchandise not delivered

(100%) 1,500

5th State government (100%) $ 3,000

Local government (100%) 4,000 7,000

[Remaining cash ($374,500 - $296,950) of $77,550/$129,550 claim of next rank = $.5986

return on dollar]

6th Merchandise creditors ($99,000  .5986) $59,261

Local bank for loan principal
($30,000  .5986) 17,958
Company president ($550  .5986) 329 77,548
Total distributed (equal to available cash) $374,498*
*Rounding error; should be $374,500.
Solution P18-4 [In Thousands]

1. POP INC. STATEMENT OF AFFAIRS

Pop Inc. Statement of Affairs on August 1, 2014

Assets
Book Value Estimated Estimated
Realizable Realizable Value
Values Less Available for
Secured Creditor Unsecured
Liabilities Creditors
Pledged for secured creditors
$775 Fixed Assets - net $475
Less: Bond payable (500)
$0
Available for priority and unsecured
creditors
250 Cash and equivalents 250
150 Accounts receivable 125
200 Inventories 100
Total available for priority and 475
unsecured creditors
Less: Priority liabilities (150)
Total available for unsecured creditors 325
______ Estimated deficiency 25
$1,375 $350

Liabilities and Stockholders’ Equity

Book Value Secured and Unsecured Non-
Priority priority Claims
Claims
Fully secured creditors
$500 Bond payable $500
Less: fixed assets (475) $25
pledged as
security

Priority liabilities
150 Wages payable 150
650

Unsecured creditors
200 Account payable $200
125 Interest payable 125

Stockholders’ equity
550 Common stock
(150) Retained earnings ______
$1,375 Total unsecured non-priority claims $350

2. ESTIMATED PAYMENTS PER DOLLAR TO EACH CLASS OF CLAIMS:

Cash Available $950

Distribution to partially secured and priority creditors:

Bond payable (secured portion) $475
Administrative expense 250
Wages payable 150 875

Available to unsecured non-priority creditors (A) $75

Unsecured non-priority creditors:
Account payable 200
Bond payable (unsecured portion) 25
Interests payable 125
Total unsecured non-priority claims (B) $350

Per dollar pro rata distribution for unsecured non-priority creditors:

A/B = $75/$350 = $0.21

a. Payments for partially secured class

Bond payable (secured portion) $475
Bond payable (unsecured portion) 5.25
$0.21x$25 $480.25
b. Payments for unsecured priority class
Administrative expense $250
Wages payable 150
Total unsecured priority class payment $400

c. Payments for unsecured non-priority class

Account payable ($0.21x$200) 42
Interests payable ($0.21x$125) 26.25
Total unsecured non-priority payment $68.25

2 Estimated payments per dollar for unsecured creditors

Cash available $66,200

Distribution to partially secured and unsecured

priority creditors:

Note payable and interest $28,000

Administrative expenses 4,000
Wages payable 12,000 44,000

Available to unsecured nonpriority

creditors = A $22,200

Note payable and interest (unsecured portion) $ 3,000

Accounts payable 26,400
Rent payable 7,600

Unsecured nonpriority claims = B $37,000

A/B = $22,200/$37,000 = $.60 per dollar

Expected recovery for each class of claims

Partially secured

Note payable and interest

Secured portion $28,000
Unsecured portion ($3,000  $.60) 1,800 $29,800

Unsecured priority

Administrative expenses $ 4,000

Wages payable 12,000 16,000

Unsecured nonpriority

Accounts payable ($26,400  $.60) $15,840

Rent payable ($7,600  $.60) 4,560 20,400

Total payments $66,200