Question

A company enters Chapter 7 bankruptcy proceedings. Its balance sheet, prepared using GAAP for a company with continuing operations, is as follows: Cash $ 15,000 Accounts payable $ 90,000 Inventories 100,000 Loans payable 300,000 Plant and equipment, net 250,000 Equity (deficit) (25,000) Total $365,000 Total $365,000 2. The plant and equipment is security for one of the loans, with a balance of $130,000. The other liabilities are unsecured. The following transactions occur: * Inventories with a book value of $60,000 were sold for $40,000. * The plant and equipment was sold for $200,000. The loan secured by the plant and equipment was paid. * Wages and administrative expenses of $10,000 were accrued. * An initial payment of 40 cents per dollar of indebtedness was paid to the unsecured creditors. 3. The statement of realization and liquidation reports total "assets not realized" of:________.

A. $ 40,000
B. $ 60,000
C. $ 61,000
D. $150,000

Answer 1

A) $ 40,000

Step-by-step explanation:

Cash $ 15,000

Inventories $100,000

Plant and equipment, net $250,000

total assets $365,000

Accounts payable $ 90,000

Loans payable $300,000

Equity (deficit) ($25,000)

total liabilities and equity $365,000

Assets not realized would be assets that are left over and haven't been sold yet (or converted to cash) by the trustee

• inventories = $100,000 total - $60,000 realized = $40,000 not realized
• plant and equipment was all sold
• cash doesn't have to be realized