Question

kimber company is in the process of liquidating and going out of business. the firm’s accountant has provided the following balance sheet and additional information:assetscash$ 30,000accounts receivable90,000merchandise inventory150,000total current assets$ 270,000land$ 50,000buildings and equipment400,000less: accumulated depreciation(120,000)total land, buildings, and equipment$ 330,000total assets$ 600,000liabilities and stockholders’ equityaccounts payable$ 80,000notes payable110,000total current liabilities$ 190,000long-term debt130,000total liabilities$ 320,000stockholders’ equity:common stock, no par$ 100,000retained earnings180,000total stockholders’ equity$ 280,000total liabilities and stockholders’ equity$ 600,000required:it is estimated that all but 20 percent of the accounts receivable can be collected, and that the merchandise inventory can be disposed of in a liquidation sale for 70 percent of its cost. buildings and equipment can be sold at $60,000 above book value (the difference between original cost and accumulated depreciation shown on the balance sheet), and the land can be sold at its current appraisal value of $85,000. in addition to the liabilities included in the balance sheet, $5,000 is owed to employees for their work since the last pay period, and interest of $10,000 has accrued on notes payable and long-term debt.calculate the amount of cash that will be available to the stockholders if the accounts receivable are collected, the other assets are sold, and all liabilities and accrued expenses are paid.

Explanation:

Step1: Calculate collectible accounts receivable

The accounts receivable balance is $\$90,000$. 80% (100% - 20%) is collectible:
$\$90,000 \times 0.80 = \$72,000$

Step2: Calculate inventory liquidation value

Merchandise inventory is $\$150,000$, sold at 70% of cost:
$\$150,000 \times 0.70 = \$105,000$

Step3: Calculate fixed assets liquidation value

Land: $\$50,000$ (appraised value)
Buildings & equipment book value: $\$400,000 - \$120,000 = \$280,000$; liquidation value is $\$280,000 + \$60,000 = \$340,000$
Total fixed assets: $\$50,000 + \$340,000 = \$390,000$

Step4: Calculate total cash from assets

Add existing cash, collectible receivables, inventory proceeds, fixed assets proceeds:
$\$30,000 + \$72,000 + \$105,000 + \$390,000 = \$597,000$

Step5: Calculate total liabilities to pay

Accounts payable: $\$80,000$
Notes payable + accrued interest: $\$110,000 + \$10,000 = \$120,000$
Long-term debt: $\$130,000$
Employee wages: $\$5,000$
Total liabilities: $\$80,000 + \$120,000 + \$130,000 + \$5,000 = \$335,000$

Step6: Calculate stockholder available cash

Subtract total liabilities from total cash from assets:
$\$597,000 - \$335,000 = \$262,000$

Answer:

$\$262,000$