Problem

Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: I...

Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: I

 

Book Value

Fair Value

Inventory

$ 86,000

$ 50,000

Land and buildings

250,000

400,000

Equipment

123,000

110,000

The company has a reorganization value of $600,000.

a. Describe the rules to determine whether to apply fresh start accounting to Kansas City.

b. If fresh start accounting is appropriate, how will this company’s assets be reported?

c. If a Goodwill account is recognized in a reorganization, where should it be reported? What happens to this balance?

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