Reorganization Entries and Balance Sheet
Reorganization Entries and Balance Sheet
On September 30, 2008, SRP Company filed a petition for reorganization with a bankruptcy court. The plan was approved by the court and all parties of interest on January 2, 2009, when SRP Company’s balance sheet was as follows:
SRP Company Balance Sheet January 2, 2009
Save your time - order a paper!
Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines
Order Paper Now| Cash | $32,000 | |
| Accounts receivable | $71,450 | |
| Less: allowance for uncollectibles | 16,750 | |
| Inventories | 126,600 | |
| Plant & Equipment | 322,000 | |
| Less: Accumulated depreciation | 180,700 | 141,300 |
| Land | 20,800 | |
| Patents | 92,000 | |
| Total Assets | 467,600 | |
| Current liabilities | ||
| Accounts payable-unsecured | ||
| 12% Notes payable-unsecured | 57,000 | |
| Accrued Wages-with priority | 11,900 | |
| Accured Interest payable | 38,400 | |
| Total current liabilities | 250,000 | |
| 10% note payable-unsecured | 54,400 | |
| 9% mortgage note payable-secured by equipment | 80,000 |
Stockholders’ Equity
Common stock $ .50 par value, 2,500,000
Shares Authorized, $480,000 shares issued and Outstanding 240,000
Retained Earnings (deficit) (156,800)
Total Equities 467,600
The terms of the organization plan are as follows:
1. Creditors represented by $69,000 of the unsecured accounts payable agree to accepts the accounts receivable of SRP Company in full settlements of their claims. The fair value of the receivables is $51,000.
2. Creditors represented by $54,000 of the unsecured accounts payable agree to accept a patent with a book value of $42,000 and a fair value of $50,000 in full settlement of their claims.
3. Creditors of the remaining unsecured accounts payable agree to accept $.60 on the dollar. Cash is paid to these creditors and to the creditors with priority.
4. The creditors holding the 12%, $57,000 note (on which there is $11,900) accrued interest ) agreed to extend the due date for two years from January 3,2009, and to reduce the interest rate to 6% on the current carrying value of the debt ($63,000), payable annually.
5. the holder of the 10%, $54,400 unsecured note (on which these is $11,900 accured interest ) agreed to cancel the accrued interest and $14,400 of the principal; interest on the new note at 10% is due annually, with the principal due on January 3,2012.
6. the holder of the 9%, $80,000 mortgage note (on which there is $20,500 accrued interest) agreed to accept 100,000 shares of the common stock in exchange for full satisfaction of the debt. The common stock had a fair value of $.59 per share.
7. the par value of the common stock is reduced to $.10 per share and any remaining accumulated deficit is eliminated.
Required:
A. Prepare a journal entries to give effect to the reorganization.
B. Prepare a post-reorganization balance sheet dated January 2, 2009
C. Prepare journal entries to accrue interest on December 31, 2009, and to record the payment of interest on January 2, 2010
