The following balance sheet was prepared for Crane Company on December 31, 2012:

.:.

Crane Company has had operating difficulties, accumulating a deficit over several years before 2012. During 2012, however, Crane reported a significantly lower operating loss, and prospects for the future are relatively bright. Although management and stockholders are optimistic about the future, it is almost certain that the company will lack the necessary working capital to handle existing obligations and expected future growth. In light of these facts, Crane has filed for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978. The reorganization plan, the provisions of which are set out below, has received the approval of stockholders, creditors, and the court. Provisions of the reorganization plan are as follows:

1. Accounts receivable are to be written down to $40,000 to reflect their current expected realizable value.

2. Inventory is fairly valued, but goodwill is to be written off, and property and equipment is to be written down to its fair value of $118,000.

3. The $20 par value common stock is to be replaced with $4 par value common stock on a share-for-share basis in order to create some reorganization capital, which will be used to eliminate the deficit.

4. The bondholders agree to exchange their bonds for new 8% bonds in the same maturity amount, but with a due date of June 30, 2019, and 6,000 shares of $4 par value common stock. The stock will be divided ratably among the bondholders. The fair value of the common stock is equal to its par value.
5. Accounts payable are expected to be paid in full, although creditors have agreed to ex tend due dates by as much as six months.

6. Any accumulated deficit is to be eliminated.

Required:

A. Prepare journal entries to record the effects of the reorganization plan.

B. Prepare a balance sheet as it would appear immediately after the reorganization.