Advance Accounting Chapter 17

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E17-5

1On the basis of the reorganization value, Baxter Hardware qualifies for fresh start reporting because the estimated reorganization value of $2,000,000 is less than the postpetition liabilities and allowed claims.

| Estimated reorganization value| | $2,000,000|
| Liabilities:| | |
| Postpetition liabilities| $1,200,000| |
| Prepetition liabilities| 1,500,000| |
| Fully secured debt| 900,000| 3,600,000|
| Excess liabilities over reorganization value| | $1,600,000|

2Old stockholders must retain less than a 50% interest in the “new entity.”

| Reorganization value| | $2,000,000|
| Less: Payment to prepetition claimants| | 150,000| | | | 1,850,000|
| Reorganized capital structure:| | |
| Postpetition liabilities| $1,200,000| |
| Notes payable| 300,000| |
| Fully secured debt| 900,000| |
| New common stock to prepetition claimants| 375,000| 2,775,000| | New common stock to old stockholders| $ (925,000)| |

P 17-1

1Entries on trustee’s books:

March 1, 2011
| Cash| $ 4,000| |
| Accounts receivable — net| 8,000| |
| Inventories| 36,000| |
| Land| 20,000| |
| Buildings — net| 100,000| |
| Intangible assets| 26,000| |
| Accounts payable| | $50,000|
| Note payable — unsecured| | 40,000|
| Revenue received in advance| | 1,000|
| Wages payable| | 3,000|
| Mortgage payable| | 80,000|
| Estate equity| | 20,000|
To record custody of Scott Corporation in liquidation.

March 2011
| Cash| $ 7,200| |
| Estate equity| 800| |
| Accounts receivable — net| | $ 8,000|
To record collection of receivables and recognize loss.

| Cash| $ 19,400| |
| Estate equity| 16,600| |
| Inventories| | $36,000|
To record sale of inventories at a loss.

| Cash| $ 90,000| |
| Estate equity|...
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