The plan of reorganizing for Taylor Companies, Inc., was approved by the court, stockholders, and creditors on
Question:
Accounts Payable (postpetition) ..... $ 30,000
Liabilities Subject to Compromise:
Accounts Payable ............ 80,000
Notes Payable, 10%, unsecured ...... 150,000
Interest Payable ............ 40,000
Bonds Payable, 12% ......... 200,000
Common Stock, $1 par ........ 100,000
Additional Paid-In Capital ........ 200,000
Retained Earnings (deficit) ........ (178,000)
Total ............... $622,000
A total of $30,000 of accounts payable has been incurred since the company filed its petition for relief under Chapter 11. No other liabilities have been incurred since the petition was filed. No payments have been made on the liabilities subject to the compromise that existed on the petition date. Under the terms of the reorganization plan:
1. The accounts payable creditors existing at the date the petition was filed agree to accept $72,000 of net accounts receivable in full settlement of their claims.
2. The holders of the 10 percent notes payable of $150,000 plus $16,000 of interest payable agree to accept land having a fair value of $125,000 and a book value of $85,000.
3. The holders of the 12 percent bonds payable of $200,000 plus $24,000 of interest payable agree to cancel accrued interest of $18,000, accept cash payment of the remaining $6,000 of interest, and accept a secured interest in the company’s equipment in exchange for extending the term of the bonds for an additional year at no interest.
4. The common shareholders agree to reduce the deficit by changing the stock’s par value to $2 per share and eliminating any remaining deficit after recognition of all gains or losses from the debt restructuring transactions specified in the plan of reorganization. The deficit will be eliminated by reducing additional paid-in capital.
Required
a. Prepare a recovery analysis for the plan of reorganization, concluding with the total recovery of each liability and capital component of Taylor Companies.
b. Prepare the journal entries to account for the discharge of the debt and the restructuring of the common equity in fulfillment of the plan of reorganization.
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
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