Acc450 Advanced Accounting: 10-2 SRP Company (Reorganization Entries and Balance Sheet)

Acc450 Advanced Accounting

P10-2 Reorganization Entries and Balance Sheet
On September 30, 2008, SRP Company filed a petition for reorganization with a bankruptcy court. The plan was approved by the court and all parties of interest on January 2, 2009, when SRP Company’s balance sheet was as follows:

SRP Company Balance Sheet January 2, 2009

Cash $32,200

Accounts receivable $71,450

Less: allowance for uncollectibles 16,750 54,700

Inventories 126,600

Plant & Equipment 322,000

Less: accumulated depreciation 180,700 141,300

Land 20,800

Patents 92,000

Total Assets 467,600

Current liabilities

Accounts payable – unsecured 142,700

12% Notes payable – unsecured 57,000

Accrued Wages - with priority 11,900

Accrued Interest payable 38,400

Total Current Liabilities 250,000

10% note payable – unsecured 54,400

9% mortgage note payable - secured by equipment 80,000

Stockholders’ Equity

Common stock $ .50 par value, 2,500,000

Shares Authorized, $480,000 shares issued and Outstanding 240,000

Retained Earnings (deficit) (156,800)

Total Equities 467,600

The terms of the organization plan are as follows:

1. Creditors represented by $69,000 of the unsecured accounts payable agree to accepts the accounts receivable of SRP Company in full settlements of their claims. The fair value of the receivables is $51,000.

2. Creditors represented by $54,000 of the unsecured accounts payable agree to accept a patent with a book value of $42,000 and a fair value of $50,000 in full settlement of their claims.

3. Creditors of the remaining unsecured accounts payable agree to accept $.60 on the dollar. Cash is paid to these creditors and to the creditors with priority.

4. The creditors holding the 12%, $57,000 note (on which there is $11,900) accrued interest ) agreed to extend the due date for two years from January 3,2009, and to reduce the interest rate to 6% on the current carrying value of the debt ($63,000), payable annually.

5. the holder of the 10%, $54,400 unsecured note (on which these is $11,900 accured interest ) agreed to cancel the accrued interest and $14,400 of the principal; interest on the new note at 10% is due annually, with the principal due on January 3,2012.

6. the holder of the 9%, $80,000 mortgage note (on which there is $20,500 accrued interest) agreed to accept 100,000 shares of the common stock in exchange for full satisfaction of the debt. The common stock had a fair value of $.59 per share.

7. the par value of the common stock is reduced to $.10 per share and any remaining accumulated deficit is eliminated.

A. Prepare a journal entries to give effect to the reorganization.
B. Prepare a post-reorganization balance sheet dated January 2, 2009
C. Prepare journal entries to accrue interest on December 31, 2009, and to record the payment of interest on January 2, 2010
Powered by