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Build a Model: Duchon Industries.

Chapter 22. Ch 22-5 Build a Model (Please see attached file)

Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $900 million, while the current assets were sold for another $400 million. Thus, the total proceeds from the liquidation sales were $1,300 million. Trustee's costs amounted to $1 million; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities. Determine the amount available for distribution to all claimants.

Balance Sheets (Millions of Dollars)
Assets
Current assets $700
Net fixed assets 1,300
Total assets $2,000

Liabilities and equity
Accounts payable $80
Accrued taxes 80
Accrued wages 70
Notes payable 400
Total current liabilities $630
First-mortgage bondsa 700
Second-mortgage bondsa 300
Debentures 500
Subordinated debenturesb 200
Common stock 100
Retained Earnings (430)
Total claims $2,000

a All fixed assets are pledged as collateral to the mortgage bonds.
b Subordinated to notes payable only.

Other inputs (in thousands of dollars):

Proceeds from sale of fixed assets = $900
Proceeds from sale of current assets = $401
Trustee's costs = $1

Total claims (including trustee expenses)
Total cash from liquidation
Amount available for distribution to shareholders

Initital Distribution to Priority Claimants

Priority claims:

Trustee's expenses
Worker's wages due
Government taxes due

Distribution to first mortgage (paid from sale of fixed assets)
Remaining proceeds from sale of fixed assets after satisfying first mortgage holders

In the attached file, the "empty" cells need to be filled
Distribution to second mortgage (paid from sale of fixed assets after satisfying first mortgage holders)

Remaining proceeds from sale of fixed assets after satisfying first and second mortgage holders

Total preliminary distributions to priority claimaints

Total of satisfied priority claims
Total unsastified claims from all claimants
Funds available for distribution to general creditors:
Pro rata distribution percentage

Distributions due to general claims: Distribution after Subordination Adjustment
Remaining Unsatisfied Claim
Amount of Claim Pro Rata Distribution Subordination Adjustment

Unsatisfied first mortgage
Unsatisfied second mortgage
Accounts payable
Notes payable
Debentures
Subordinated debentures

Total

Total distributions (including prior distributions to mortgage holders and subordination adjustment):

Percent of Claim Satisfied
Total Distribution Original Claim

First mortgage $700
Second mortgage $300
Accounts payable $80
Notes payable $400
Debentures $500
Subordinated debentures $200

Attachments

Solution Summary

The expert builds a model for Duchon Industries.

$2.19