200782 Lecture Notes - Lecture 1: Cash Flow Statement, Fixed Asset, Cash Flow
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| 12/8/2012 | ||||||||||
| Chapter: | 24 | |||||||||
| Problem: | 5 | |||||||||
| 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) | $2,331 | |||||||||
| Total cash from liquidation | $1,301 | |||||||||
| Amount available for distribution to shareholders | $0 | |||||||||
| Initital Distribution to Priority Claimants | ||||||||||
| Priority claims: | ||||||||||
| Trustee's expenses | $1 | |||||||||
| Worker's wages due | $70 | |||||||||
| Government taxes due | $80 | |||||||||
| Distribution to first mortgage (paid from sale of fixed assets) | $700 | |||||||||
| Remaining proceeds from sale of fixed assets after satisfying first mortgage holders | ||||||||||
| $200 | ||||||||||
| Distribution to second mortgage (paid from sale of fixed assets after satisfying first mortgage holders) | ||||||||||
| $200 | ||||||||||
| Remaining proceeds from sale of fixed assets after satisfying first and second mortgage holders | ||||||||||
| $0 | ||||||||||
| Total preliminary distributions to priority claimaints | $1,051 | |||||||||
| Total of satisfied priority claims | $1,051 | |||||||||
| Total unsastified claims from all claimants | $1,280 | |||||||||
| Funds available for distribution to general creditors: | $250 | |||||||||
| Pro rata distribution percentage | 19.5% | |||||||||
| Distributions due to general claims: | Distribution after Subordination Adjustment | |||||||||
| Remaining Unsatisfied Claim | ||||||||||
| Amount of Claim | Pro Rata Distribution | Subordination Adjustment | ||||||||
| Unsatisfied first mortgage | $0 | $0.00 | $0.00 | |||||||
| Unsatisfied second mortgage | $100 | $19.53 | $80.47 | |||||||
| Accounts payable | $80 | $15.63 | $64.38 | |||||||
| Notes payable | $400 | $78.13 | $321.88 | $39.06 | $117.19 | |||||
| Debentures | $500 | $97.66 | $402.34 | |||||||
| Subordinated debentures | $200 | $39.06 | $109.94 | $39.06 | $0.00 | |||||
| Total | $1,280 | $250 | $1,030 | |||||||
| Total distributions (including prior distributions to mortgage holders and subordination adjustment): | ||||||||||
| Percent of Claim Satisfied | ||||||||||
| Total Distribution | Original Claim | |||||||||
| First mortgage | $700.00 | $700 | 100% | |||||||
| Second mortgage | $200.00 | $300 | 67% | |||||||
| Accounts payable | $15.63 | $80 | 20% | |||||||
| Notes payable | $117.19 | $400 | 29% | |||||||
| Debentures | $97.66 | $500 | 20% | |||||||
| Subordinated debentures | $0.00 | $200 | 0% | |||||||
| PLEASE EMAIL ME THE EXCEL STEPS ON HOW YOU GOT THE ANSWERS. MY EMAIL IS ([email protected]) | ||||||||||
Total Current Asset Current Ratio Effect on Net Income
| a | Cash is acquired through issuance of additional common stock | ____ | ____ | ____ | |||||
| b | Merchandise is sold for cash | ____ | ____ | ____ | |||||
| c | Federal income tax due for the previous year is paid | ____ | ____ | ____ | |||||
| d | A fixed asset is sold for less than book value | ____ | ____ | ____ | |||||
| e | A fixed asset is sold for more than book value | ____ | ____ | ____ | |||||
| f | Merchandise is sold on credit | ____ | ____ | ____ | |||||
| g | Payment is made to trade creditors for previous purchases | ____ | ____ | ____ | |||||
| h | A cash dividend is declared and paid | ____ | ____ | ____ | |||||
| I | Cash is obtained through short- term bank loans | ____ | ____ | ____ | |||||
| J | Short- term notes receivable are sold at a discount | ____ | ____ | ____ | |||||
| k | Marketable securities are sold below cost | ____ | ____ | ____ | |||||
| L | Advances are made to employees | ____ | ____ | ____ | |||||
| m | Current operating expenses are paid | ____ | ____ | ____ | |||||
| n | Short- term promissory notes are issued to trade creditors in exchange for past due accounts payable | ____ | ____ | ____ | |||||
| o | 10- year notes are issued to pay off accounts payable | ____ | ____ | ____ | |||||
| p | A fully depreciated asset is retired | ____ | ____ | ____ | |||||
4 DEBT RATIO- Bartley Barstools has an equity multiplier of 2.4, and its assets are financed with some combination of long-term debt and common equity. What is its equity ratio? What is its debt ratio?
6 MARKET/BOOK RATIO- Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster
