Question

Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2017. 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: Accounts receivable Inventory Land and buildings Equipment Book Value Fair Value $ 100,000 $ 55,000 112,000 100,000 601,000 650,000 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 2021) was fully secured and has not been renegotiated. • Note payable of $285,000 (due 2020) 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 2018) 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 2019) will be settled with a note for $120,000

Answer 1

Cr. Dr. 49,000 97,000 General Journal 1. To adjust... Land and Buildings Goodwill Accounts Receivable Inventory Equipment Additional Pain-in Captial BV before emerging from reorganization Total assets@BV 870000 Total liabilities@BV 1021000 Total CommonStock 320000 (Given) Deficit RE 471000 (Given) *No paid-in capital exist at this time 45,000 12,000 15,000 74,000 2. To record... Common Stock 1,82,000 Additional Pain-in Capital 1,82,000 record A/P Accounts Payable 90,000 Notes Payable Common Stock Additional Pain-in Capital Gain on Debt Discharge 7,000 8,000 6,000 69,000 BV after emerging from reorganization Total assets@BV 944000 (Given) Total liabilities@BV 384000 Total CommonStock 320000 Deficit RE 0 eliminated by reorg- Paid-in Capital 240000 total A-(totalL+CS+R *Company has 40,000 shares outstanding after reorg, the additional paid-in capital equals $6 per share ($240,000/40,000) Total assets @FV 847000 Goodwill 97000 4. To record Acc. Accrued Expenses 45,000 Notes Payable Gain on Debt Discharge 6,000 39,000 5. To record....2010 Notes Payable 2,85,000 Notes Payable Common Stock Additional Pain-in Capital Gain on Debt Discharge 60,000 98,000 70,000 57,000 5. To record...2014 Notes Payable 2,55,000 Notes Payable Common Stock Additional Pain-in Capital Gain on Debt Discharge 81,000 77,000 55,000 42,000 7. To record...201! Notes Payable 2,36,000 Notes Payable Gain on Debt Discharge 1,20,000 1,16,000 Additional paid-in Cap 147000 8. To adjust add... Additional Pain-in Capital Gain on Debt Discharge Retained Earnings 1,47,000 3,24,000 4,71,000