Buggy Whip Industries is being liquidated under Chapter 7 of the bankruptcy code. When it filed for bankruptcy, its balance sheet was as follows: ?

\begin{array}{lclr}\text { Current assets } & \$ 22,000,000 & \text { Accounts payable } & \$ 18,000,000 \\\text { Fixed assets } & & \text { Acctued taxes } & 3,000,000 \\\text { Land and buildings } & 9,000,000 & \text { Notes payable (bank)* } & 3,000,000\\\text { Equipment } & 11,500,000 & \text { Total current liabilities } & \$ 24,000,000 \\\text { Total assets }& \$ 42,500,000 & \text { Mortgage bonds* } & 8,000,000 \\& & \text { Debentures } & 4,000,000 \\& & \text { Stockholders' equity } & 6,500,000\\&&\text { Total liabilities }\\&&\text { and equity }&\$42,500,000\end{array}

*Bank loan is unsecured
**Mortgage bonds are secured by land and buildings
Assume that the liquidation is a voluntary petition, that no unpaid contributions to employee benefit plans exist, and that no customer layaway deposits are involved. The proceeds from the liquidation of the company's assets are as follows:

\begin{array}{lr}\text { Current assets } & \$ 12,000,000 \\\text { Land and buildings } & 5,000,000 \\\text { Equipment } & 7,500,000\\\text { Total }&\$24,500,000\end{array}

?
Bankruptcy administration charges are $2,500,000. Determine the amount that the mortgage bondholders will receive in this liquidation.
A) $5,000,000
B) $6,500,000
C) $8,000,000
D) $10,500,000

Technical Insolvency Occurs When the ____

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge