Distribution in Bankruptcy. Ho

Distribution in Bankruptcy. Hover Company’s balance sheet follows:


Current assets                   $1,200,000

Land                                      3,000,000

Plant and equipment     2,400,000

Total assets                        $6,600,000


Current liabilities

Accounts payable                                            $ 500,000

Notes payable                                                   1,200,000

Accrued taxes                                                   300,000

Total current liabilities                                                    $2,000,000

Noncurrent liabilities

Mortgage bonds                              $1,800,000a

Debentures                                        1,000,000

Total noncurrent liabilities                                            2,800,000

Total liabilities                                                                    $4,800,000

Stockholders’ equity

Preferred stock                                                $ 500,000

Common stock                                  1,300,000

Total stockholders’ equity                                            1,800,000

Total liabilities and stockholders’ equity                 $6,600,000

“Mortgage bonds are secured against plant and equipment.

The liquidation value for the total assets is $4 million, $1.2 million of which was received for plant and equipment. Bankruptcy costs were $150,000. Determine the distribution of the proceeds.

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