Estimated

Estimated Unsecured Amount

Secured Without
Book Value Liabilities and Owners' Equity Amount With Priority Priority
Fully secured creditors:
$ 20,000 Accrued mortgage interest $ 20,000
200,000 Mortgage payable 200,000
Total $220,000

Partially secured creditors:

24,000 Accounts payable $ 20,000 4,000
Total $ 20,000

Unsecured creditors with priority:

30,000 Wages payable $30,000
10,000 Accrued income taxes 10,000

Unsecured creditors without priority:

76,000 Accounts payable 76,000
$360,000 Totals $240,000 $40,000 $80,000
155,000 Owners' equity
$515,000

Dividend to Class 7 unsecured creditors: $80,000 ÷ $80,000 100% (maximum of 100%)

DIF: D OBJ: 21-4

14. Mallory Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. On May 1, 20X5, you
are appointed the court's trustee for the liquidation. The book values for assets and liabilities, on May
1, 20X5, were as follows:

Cash $ 4,000
Accounts receivable (net) 80,000
Inventories 200,000
Land and building (net) 340,000
Machinery (net) 100,000
Accounts payable 180,000
Salaries payable 60,000
Income tax payable 14,000
Trustee's fee payable 20,000
Mortgage payable 240,000
Bank loan payable 90,000

During May through July of 20X5, the following occurred:

The mortgage is secured by the land and building and the bank loan is secured by the machinery. The
accounts payable are secured by the inventories.
Three-fourths of the accounts receivable were collected. Of the remaining accounts, $10,000 are
believed to be uncollectible.
The inventories were sold for $170,000.
The land and building were sold for $20,000 and assumption of the mortgage. The machinery sold for
$70,000 and the proceeds were remitted to the bank.
Salaries payable and $170,000 of the accounts payable were paid.

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ESSAY

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