Fabulous Fakes Corporation is being liquidated under Chapter 7 of the bankruptcy act. All assets have been converted into cash, and $374,500 cash is available to pay the following claims:
1. Administrative expenses of preserving and liquidating the debtor
corporation’s estate …………………………………………………… $ 12,500
2. Merchandise creditors……………………………………………… 99,000
3. Local government for property taxes………………………………. 4,000
4. Local bank for unsecured loan (principal is $30,000 and interest
is $4,500) …………………………………………………………….. 34,500
5. State government for gross receipts taxes…………………………. 3,000
6. Employees for unpaid wages during the month before filing
(includes $5,000 for the company president and less than $4,000
for each of the other employees)……………………………………… 48,000
7. Customers for prepaid merchandise that was not delivered………. 1,500
8. Holders of the first mortgage on the company’s real estate
that was sold for $240,000 (includes $220,000 principal
and $8,500 interest)……………………………………………………. 228,500
Assume that all the claims are allowed and that they were timely filed.
REQUIRED
1. Rank the claims according to priority under the bankruptcy act.
2. Show how the available cash will be distributed in final liquidation of the corporation