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
|
|
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Fixed assets
|
2,200,000
|
|
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Total noncurrent assets
|
|
3,900,000
|
|
Total assets
|
|
$7,715,500
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LIABILITIES AND
STOCKHOLDERS' EQUITY
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Current liabilities
|
|
|
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Accounts payable
|
$ 200,000
|
|
|
Bank loan payable
|
950,000
|
|
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Accrued salaries
|
250,000a
|
|
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Employee benefits payable
|
80,000b
|
|
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Customer claims-unsecured
|
70,000c
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|
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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.