Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 13

Calculate cash available upon liquidation of business Kimber Co. is in the process of liquidating and going out of business. The firm's accountant has provided the following balance sheet and additional information:

It is estimated that all but 10 percent of the accounts receivable can be collected, and that the merchandise inventory can be disposed of in a liquidation sale for 80 percent of its cost. Buildings and equipment can be sold at $40,000 above book value (the difference between original cost and accumulated depreciation shown on the balance sheet), and the land can be sold at its current appraisal value of $65,000. In addition to the liabilities included in the balance sheet, $2,400 is owed to employees for their work since the last pay period, and interest of $5,100 has accrued on notes payable and long-term debt.
Required:
a. Calculate the amount of cash that will be available to the stockholders if the accounts receivable are collected, the other assets are sold as described, and all liabilities and other claims are paid in full.
b. Briefly explain why the amount of cash available to stockholders (computed in part a ) is different from the amount of total stockholders' equity shown in the balance sheet.