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Problem 21-6 (LO 5) Preparation of a statement of realization and liquidation. Problem 21-5 presents the balance sheet of St. John Corporation as of year-end 20X5. Assume that the company is not able to service its debts and is unable to secure any significant restruc- turing arrangements from its primary lenders. As a result, St. John has decided to liquidate the corporation and has submitted a plan for liquidation. The plan has received all necessary approvals, and the liabilities affected by the plan are described as follows:
Accounts payable: Of these accounts, $400,000 is fully secured by claims against inventory with a book value of $430,000. The inventory was completed at an additional cost of $25,000, it was sold for $480,000, and the secured payables were paid. Another $320,000 of the pay- ables is secured by the remaining inventory which is estimated to have a net realizable value of $200,000. The balance of the payables is unsecured.
Note payable—officer: This note is secured by the investment in Sky Industries which has a net realizable value of $320,000.
Bank A note payable: This note is secured by all of the equipment and the patent. Equipment with a book value of $800,000 has been sold for $700,000 by a broker who was paid a fee of $10,000. It is estimated that the balance of the equipment will have a net realizable value of $400,000. The patent was sold to an officer of the corporation for $250,000. Net pro- ceeds from the collateral were paid to Bank A.
Bank B note payable: This note is secured by the development land. The land consists of two separate parcels with book values of $400,000 and $300,000. The $300,000 parcel was sold for $360,000 and it is estimated that the remaining parcel will have a net realizable value of $500,000.
Mortgage payable: This mortgage is secured by the manufacturing plant and other current assets with a book value of $130,000. The plant is currently listed for sale with an asking price of
$1,800,000. Realistically, it is estimated that the plant could sell for $1,500,000 before com- missions of $90,000. The other current assets securing the mortgage were sold for $100,000. Other liabilities: $90,000 of these liabilities are secured by all receivables of the company. Recei- vables with a book value of $150,000 have been collected, and an additional $40,000 of allowance for uncollectible accounts has been established on the balance of the accounts.
The $90,000 of other liabilities were paid. Of the remaining other liabilities, $95,000 are unsecured without priority, and the balance are unsecured with priority. Since year-end,
$20,000 of the unsecured liabilities with priority have been paid out of available assets.
Since year-end 20X6, additional assets with a net realizable value of $15,000 have been discovered, and administrative/legal expenses of $20,000 in connection with the liquidation have been incurred of which half have been paid.
Prepare a statement of realization and liquidation to reflect the above activity and information.