On September 30, 2014, SRP Company filed a petition for reorganization with a bankruptcy court. The plan

Question:

On September 30, 2014, 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, 2015, when SRP Company's balance sheet was as follows:

On September 30, 2014, SRP Company filed a petition for

The terms of the reorganization plan are as follows:
1. Creditors represented by $69,000 of the unsecured accounts payable agree to accept the accounts receivable of SRP Company in full settlement 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 creditor holding the 12%, $57,000 note (on which there is $6,000 accrued interest) agreed to extend the due date for two years from January 3, 2015, 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 there is $11,900 accrued 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, 2018.
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 common stock in exchange for full satisfaction of the debt. The common stock has 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 journal entries to give effect to the reorganization.
B. Prepare a post-reorganization balance sheet dated January 2, 2015.
C. Prepare journal entries to accrue interest on December 31, 2015, and to record the payment of interest on January 2, 2016.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Advanced Accounting

ISBN: 978-1119119364

6th edition

Authors: Debra Jeter, Paul Chaney

Question Posted: