Salem-Winston Corporation is emerging from reorganization proceedings under Chapter 11 of the bankruptcy laws. The company's balance sheet shows total assets of $4,500,000, liabilities subject to compromise of $4,100,000, and postpetition liabilities of $1,000,000. For purposes of determining reorganization value, Salem-Winston has the following:

Excess cash (accumulated because no payments were made on
prepetition debt during the reorganization period)	$400,000
Net realizable value of excess assets available for disposition	80,000
Present value of future operating cash flows of the emerging entity	3,000,000
Total	$3,480,000

The new capital structure of Salem-Winston will be as follows:

Postpetition liabilities	$ 1,000,000
Senior secured debt (5%, 15-year maturity)	1,400,000
Subordinated debt (7%, 8-year maturity)	580,000
Common stock	100,000
Total	$3,080,000

The creditors represented in the amount of liabilities subject to compromise receive an immediate cash payment of $400,000 (the excess cash), all of the new debt securities, and 70 percent of the new common stock. The existing equity holders receive 30 percent of the new common stock.

Required

b. Prepare journal entries to record Salem-Winston's emergence from reorganization.

General Journal
Description	Debit	Credit
	Answer	Answer
Cash	Answer	Answer
Senior secured debt	Answer	Answer
Subordinated debt	Answer	Answer
Common stock	Answer	Answer
	Answer	Answer
To record settlement of prepetition liabilities.
	Answer	Answer
	Answer	Answer
To record creation of new equity interests.
	Answer	Answer
	Answer	Answer
To write down excess assets to estimated realizable value.
	Answer	Answer
Total assets	Answer	Answer
	Answer	Answer
To adjust asset values to reorganization value and eliminate deficit.

c. Present Salem-Winston's post-reorganization balance sheet.

Salem-Winston Balance Sheet
Total assets	Answer
Postpetition liabilities	Answer
Senior secured debt	Answer
Subordinated debt	Answer
Common stock	Answer
Total liabilities and equity	Answer

Answer rating: 100% (QA)

To record SalemWinstons emergence from reorganization the following journal entries should be made C... View the full answer