Question

1. A statement of affairs shows $50,000 of assets pledged to fully secured creditors, $100,000 of assets pledged to partially secured creditors, $85,000 of assets not held as security for any liabilities, liabilities of $40,000 to fully secured creditors, $125,000 to partially secured creditors, $20,000 to unsecured creditors with priority, and $120,000 to other unsecured creditors. Total unsecured liabilities, are reported on the statement of affairs in the amount of: A. $140,000. B. $165,000. C. $145,000. D. $120,000.

Answer 1

B. $165,000

This amount is made up of as follows:

Partially unsecured Liability = $25,000 ($125,000 - 100,000)

plus Unsecured with priority = $20,000

plus Totally Unsecured = $120,000

Total = $165,000

Step-by-step explanation:

a) The fully secured liability of $40,000 had secured assets worth $50,000, giving excess assets of $10,000.

b) The partially secured liability of $125,000 could only be secured with assets worth $100,000, leaving the balance of $25,000 as unsecured.

c) The Unsecured with priority equals $20,000

d) The completely unsecured without priority equals $120,000.

When (b) to (d) are summed, the total is $165,000.

e) The unsecured liabilities with priority will be paid before other all unsecured liabilities. That is the only advantage they enjoy. But, they can only be settled after all reorganization expenses had been settled.