Oregon Corporation has filed a voluntary petition to reorgan

Oregon Corporation has filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Reform Act. Its creditors are considering an attempt to force liquidation. The company currently holds cash of $9,000 and accounts receivable of $28,000. In addition, the company owns four plots of land. The first two (labeled A and B) cost $11,000 each. Plots C and D cost the company $23,000 and $28,000, respectively. A mortgage lien is attached to each parcel of land as security for four different notes payable of $18,000 each. Presently, the land can be sold for the following: Plot A $ 19,000 Plot B $ 14,000 Plot C $ 17,000 Plot D $ 33,000 Another $21,000 note payable is unsecured. Accounts payable at this time total $38,000. Of this amount, $10,000 is salary owed to the company\'s workers. No employee is due more than $3,700. The company expects to collect $15,000 from the accounts receivable if liquidation becomes necessary. Administrative expenses required for liquidation are anticipated to be $26,220. a. Prepare a statement of financial affairs for Oregon Corporation. b. If the company is liquidated, how much cash would be paid on the note payable secured by plot B? c. If the company is liquidated, how much cash would be paid on the unsecured note payable? d. If the company is liquidated and plot D is sold for $35,700, how much cash would be paid on the note payable secured by plot B?

Solution

ANSWER a

Oregon Corporation-Statement of financial affairs

* Derived as a balancing figure.

Ansswer b

According to the statement of financial affairs prepared above, $3780 cash should be available for unsecured nonpriority creditors. Unfortunately, $44000 in unsecured nonpriority liabilities exist. Thus, only 8.6% of these claims will be covered ($3780/$44000).

Cash of $14340 will be paid on the note payable that is secured by plot B. The land is to be sold for $14000 leaving a $4000 unsecured debt. Since 8.5% of this amount is expected to be paid, the holder will only receive an additional $340

Answer c

As indicated in part b, only 8.5% of the unsecured nonpriority claims can be satisfied. Thus, just $1785 will be paid on the unsecured $21000 note payable.

Answer d

Selling plot D for $35700 rather than $33000 generates an additional $2700 in available cash. The statement of financial affairs produced above would then report $6480 as the amount available for unsecured nonpriority claims or 14.73% of the total ($6480/$44000). After plot B is sold for $14000, the remaining $4000 of this note is classified as an unsecured nonpriority liability. Since 14.73% of this amount is to be paid, an additional $589 is transferred to the holder of the note for a total of $14589.