Crawford Distributors, Inc., is a distributor of industrial cleaning supplies throughout the Midwest. Unfortunately, the company has experienced a downturn in sales due to plant closings and relocations throughout its Midwest market. The company is seeking protection under Chapter 11 of the Bankruptcy Code. Condensed financial statements for the year-to-date period ending March 31 of the current year are as follows:
Balance Sheet
As of March 31
Assets:
Cash and cash equivalents . . .. ... .... .. . . .. . .. . . . . .. . . .. $ (46,000)
Accounts receivable. . .. . . . . .. ... .. .. . . . . .. . .. . . .. ... . .. 847,000
Inventory . .. .. .. . .. . . . . .. .. .. . .. . . . . .. . . . . . .. .. .. . . . . 1,100,000
Equipment (net of depreciation). .. . .. .. .. . . . . . .. . . . . .. 325,000
Other assets. .... . .. . . . . .. .... . .. . . . . .. . . . . . .. .... .. ... . . 110,000
Total. .. .. .... .. . .. . . .. .... .. . . . . . .. . . . . . .. .... .. .... . .. $2,336,000
Liabilities and equity:
Accounts payable . .. . . . . .. .... . .. . . . . .. . . . . . .. .... .. ... . . $1,530,000
Note payable A.. . .. . . . . .. .... . .. . . . . .. . . . . . .. .... .. ... . . 600,000
Note payable B .. . .. . . . . .. .... . .. . . . . .. . . . . . .. .... .. ... . . 550,000
Other liabilities .. . .. . . . . .. .... . .. . . . . .. . . . . . .. .... .. ... . . 125,000
Shareholders’ equity . .. . . .. .. .. ... .. . . .. .. . . . . . .. .. .. ... . . (469,000)
Total... .. .. .. . . . ... . .. .. .. ... . . . . .. . . .. . .. .... .. .. .. . .. $2,336,000
Income Statement
For Year Ended March 31
Net sales . .. .... . .. . . . . .. .. .. . .. . . . . .. . . . . . .. .... .. .. . . $ 853,000
Cost of sales. .... . .. . . . . .. .. .. . .. . . . . .. . . . . . .. .... .. .. . . 700,000
Gross profit . .... . . . .. . . .. .... ... .. . . .. . . . . . .. .. .. .. ... . . $ 153,000
Selling, General, and Administrative Expenses.. . .. . . .. . 385,000
Operating income . . . .. .. . . .. ... .. .. .. . . .. . .. . . .. .... .. . . $(232,000)
Interest expense.. . . . . . .. . . . . .. . .... .. . . . . . .. . . . . .. ...... 17,250
Net income before tax. . . . .. . . . . . .. .... .. . . . . . .. . . . . .... $(249,250)
During the next three months, the company engaged in the following activities regarding its reorganization:
a. Net sales of $600,000 have occurred with a gross profit margin of 15.00%. Eighty percent of these sales has been collected in full, and 5.00% of the remaining balance is deemed to be uncollectible.
b. Of the receivables existing at March 31, 90.00% has been collected. Of the remaining balance, 5.00% is deemed to be uncollectible.
c. In an attempt to reduce inventory levels, only $230,000 of inventory was purchased on account. Payments against accounts payable were $800,000.
d. Accounts payable of $135,000 was satisfied by returning the inventory that was purchased. The inventory was carried at its market value of $120,000. Based on current interest rates, another $360,000 of accounts payable was restructured as a note beginning on May 1 calling for 15 monthly payments of $24,971.17.
e. Note A was restructured by a conveyance of assets and a modification of terms. A vacant lot with a book value of $60,000 and a market value of $116,000 was conveyed to the creditor. As of May 1, the remaining balance of the note, along with accrued interest of $6,000 as of April 30, is to be satisfied by making 30 payments of $16,000 bearing a market interest rate of 6.12%.
f. Note B was restructured on June 30 by forgiving $50,000 of debt and making 48 equal monthly payments of $11,000 based on a market interest rate of 6.30%.
g. Included in other liabilities is a short-term note with a book value of $15,000. Based on current interest rates, the note has a present value of $14,704. Common stock of the company has been issued to the creditor in full satisfaction of the note.
Required
Given the above information, prepare the company’s trial balance for the 6-month period ending June 30 of the current year. It may be helpful to prepare a worksheet with the following column headings: Account, Trial Balance as of March 31 (Debit and Credit columns), Second Quarter Activities/Adjustments (Debit and Credit columns), and Trial Balance as of June 30 (Debit and Credit columns). The use of Excel or some other computer spreadsheet is highly recommended.