Kaplan AC 450 Unit 6 Problem 13-36 Solution

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     

  Inventory

112,000       

100,000     

  Land and buildings

601,000       

650,000     

  Equipment

57,000       

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.)