Question

Becket Corporation's accountant has prepared the following balance sheet as of November 10, 2017, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act: BECKET CORPORATION Balance Sheet November 10, 2017 Assets Cash $ 24,000 Accounts receivable (net) 73,000 Investments 38,000 Inventory (net realizable value is expected to approximate 600 of cost) 92,000 Land 69,000 Buildings (net) 260,000 Equipment (net) 141,000 Total assets $ 697,000 Liabilities and Equities Accounts payable $ 141.000 Notes payable-current (secured by equipment) 245,000 Notes payable-(due in 2020) (secured by land and buildings) 337,000 Common stock ($15 par value) 60,000 Retained earnings (deficit) (86,000) Total liabilities and equities $ 697.000 The company has presented the following proposal: • The reorganization value of the company's assets just prior to issuing additional shares below, selling the company's investment, and conveying title to the land is set at $730,000 based on discounted future cash flows. • Accounts receivable of $44,000 are written off as uncollectible. Investments are worth $64,000, land is worth

Answer 1

Journal Entry:1 Dr. Amount ($) Cr. Amount ($) Particulars 26,000 35,000 64,000 29,960 Investments ($64,000-$38,000) Land ($104,000-$69,000) Buildings ($324,000–$260,000) Reorganization value in excess of amt. allocated to intangible assets ($730,000-$700,040*) Accounts receivable ($73,000-$44,000) Inventory ($92,000-$57,040) Equipment ($141,000-$98,000) Additional paid-in capital (Bal. Fig) 29,000 34,960 43,000 48,000 Assets Cash Accounts receivables ($73,000-$44,000 uncollectible amount) Investments Inventory (60%*$92,000) Land Buildings Equipment Total assets Amount ($) 24,000 29,000 64,000 57,040 104,000 324,000 98,000 700,040 Particulars Cash ($5,000 $16) Common stock ($5,000 $15) Additional paid-in capital Journal Entry:2 Dr. Amount ($) Cr. Amount ($) 80,000 75,000 5,000 Particulars Cash ($5,000 $16) Common stock ($5,000 $15) Journal Entry: 3 Dr. Amount ($) Cr. Amount ($) 64,000 64,000

Journal Entry: 4 Particulars Dr. Amount ($) Cr. Amount ($) Notes payable-current 245,000 Cash 64,000 Notes payable (due 2021) 142,000 Gain on debt discharge (Bal. Fig) 39,000 Journal Entry: 5 Particulars Dr. Amount ($) Cr. Amount ($) Accounts payable 141,000 Note payable (due 2018) 52,000 Gain on debt discharge (Bal. Fig) 89,000 Journal Entry: 6 Particulars Dr. Amount ($) Cr. Amount ($) Note payable (due 2020) 337,000 Land 62,000 Note payable (due 2024) 185,000 Common stock (1,000 shares at $ 15 par value) 15,000 Additional paid-in capital ($14 per 1,000 shares) * 14,000 Gain on debt discharge (Bal. Fig) 61,000 Journal Entry: 7 Dr. Amount ($) Cr. Amount ($) Particulars Gain on debt discharge 189,000 ($39,000+$89,000+$61,000) Additional paid-in capital (Bal. Fig) Retained earnings (deficit) 103,000 86,000

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