Acc450 Advanced Accounting: E10-8 The following balance sheet was prepared for Crane Company

Acc450 Advanced Accounting

The following balance sheet was prepared for Crane Company on December 31, 2009:
Crane Company
Balance Sheet
December 31, 2009
Cash 33,000
Accounts Receivable 52,500
Less: Allowance for Uncollectibles 3,800 48,700
Inventory 71,000
Property and Equipment (net) 142,000
Goodwill 20,000
Total Assets $314,700

Accounts Payable 66,000
10% Bonds Payable, due 06/30/12 130,000
Common Stock, $20 par, 10,000 shares outstanding 200,000
Retained Earnings (deficit) (81,300) 118,700
Total Equities $314,700
Crane Company has had operating difficulties, accumulating a deficit over several years before 2009. During 2009, however, Crane reported a significantly lower operating loss, and prospects for the future are relatively bright. Although management and stockholders are optimistic about the future, it is almost certain that the company will lack the necessary working capital to handle existing obligations and expected future growth. In light of these facts, Crane has filed for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978. The reorganization plan, the provisions of which are set out below, has received the approval of stockholders, creditors, and the court. Provisions of the reorganizations plan are as follows:
Accounts receivable are to be written down to $40,000 to reflect their current expected realizable value.
Inventory is fairly valued, but goodwill is to be written off, and property and equipment is to be written down to its fair value of $118,000.
The $20 par value common stock is to be replaced with $4 par value common stock on a share-for-share basis in order to create some reorganization capital, which will be used to eliminate the deficit.
The bondholders agree to exchange their bonds for new 8% bonds in the same maturity amount, but with a due date of June 30, 2016, and 6,000 shares of $4 par value common stock. The stock will be divided ratably among the bondholders. The fair value of the common stock is equal to its par value.
Accounts payable are expected to be paid in full, although creditors have agreed to extend due dates by as much as six months.
Any accumulated deficit is to be eliminated.

a. Prepare journal entries to record the effects of the reorganization plan.
b. Prepare a balance sheet as it would appear immediately after the reorganization.
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