Kaplan AC 450 Advanced Accounting Unit 6 Problem 13-36

Problem 13-36 [LO9]

Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2013. The company currently has 40,000 shares of common stock outstanding with a $320,000 par value. As part of the reorganization, the owners will contribute 26,000 shares of this stock back to the company. A retained earnings deficit balance of $471,000 exists at the time of this reorganization.

      The company has the following asset accounts:

 Book Value  Fair Value

  Accounts receivable$100,000       $55,000     

  Inventory112,000       100,000     

  Land and buildings601,000       650,000     

  Equipment57,000       42,000     

________________________________________

The company’s liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates.

•Accounts payable of $90,000 will be settled with a note for $7,000. These creditors will also get 1,000 shares of the stock contributed by the owners.

•Accrued expenses of $45,000 will be settled with a note for $6,000.

•Note payable of $110,000 (due 2017) was fully secured and has not been renegotiated.

•Note payable of $285,000 (due 2016) will be settled with a note for $60,000 and 14,000 shares of the stock contributed by the owners.

•Note payable of $255,000 (due 2014) will be settled with a note for $81,000 and 11,000 shares of the stock contributed by the owners.

•Note payable of $236,000 (due 2015) will be settled with a note for $120,000.

The company has a reorganization value of $944,000.

Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)