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Beacon Computer Proposed Distribution of Liquidating Value

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?

Solution Preview

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

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 ...

Solution Summary

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