LD Inc. declared bankruptcy through a Chapter 7 filing. Consider the following data in millions of dollars and determine the funds available for secured creditors.
-Proceeds from the liquidation of assets = $395
-First mortgage = $100
-Administration expenses associated with the bankruptcy = $2
-Notes payable to the banks = $205
-Subordinated debentures = $350
-Taxes due to federal, state, and other governmental agencies = $12
-Wages due employees (1,000 employees) = $3
A) $379
B) $378
C) $278
D) $279

Question

Quizplus · Accepted Answer

The funds available for secured creditors are calculated by subtracting the administration expenses from the proceeds of liquidation: $395 - $2 = $393. The first mortgage of $100 is paid first, leaving $293. The notes payable to banks are $205, which are also secured, leaving $88. However, the question asks for the total funds available for secured creditors, which is $100 (first mortgage) + $205 (notes payable) = $305. The correct choice is $379, which is the total proceeds minus administration expenses and taxes, as taxes are prioritized over unsecured creditors.

LD Inc Declared Bankruptcy Through a Chapter 7 Filing