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Beacon Computer Proposed Distribution of Liquidating Value

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When the Beacon Computer Company filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, it had the following balance sheet information:

Liquidating Value Claims
Trade Credit $3000
Secured mortgage notes $6000
Senior debentures $5000
Junior debentures $9000
Total Assets $15,500 Book Equity -$7500

Assuming there are no legal fees associated with the bankruptcy, as trustee, what distribution of liquidating value do you propose?

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Solution Summary

The solution examines the beacon computer proposed distribution of liquidation value.

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At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following Total claim of creditors
Trade Credit = $3000
Secured Mortgage notes =$6000
Senior Debentures=$5000
Junior debentures=$9000
Total=$23000

Creditor claims total $23,000 and the liquidation proceeds are only $15,500. Liquidation proceeds are insufficient to satisfy the claims of creditor. Thus, shareholders will not receive any payment.

Mortgage notes ...

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