Advance Accounting Chapter 17
E17-5
1 On 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 |
2 Old 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
1 Entries 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 |
1 On 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 |
2 Old 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
1 Entries 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 |