Holmes Corporation files a voluntary petition with the bankruptcy court in hopes of reorganizing. Company officials prepare a statement of financial affairs showing these debts:

Liabilities with priority:
Salaries payable	$	38,000
Fully secured creditors:
Notes payable (secured by land and buildings valued at $104,000)		90,000
Partially secured creditors:
Notes payable (secured by inventory valued at $50,000)		160,000
Unsecured creditors:
Notes payable		70,000
Accounts payable		30,000
Accrued expenses		3,000

Holmes has 17,000 shares of common stock outstanding with a par value of $8 per share. In addition, the company currently reports a deficit balance of $100,000.

In hopes of emerging from Chapter 11 bankruptcy, officials propose the following reorganization plan:

• The companys assets have a total book value of $427,000, an amount considered to be equal to fair value. The reorganization value of business assets as a whole is set at $468,000.
• Employees will receive a one-year note in lieu of all salaries owed. Interest will be paid at a 9 percent annual rate, a normal rate for this type of liability.
• Future interest on the fully secured note will drop from a 14 percent annual rate, which is now unrealistic, to a 9 percent rate.
• The company will issue a new six-year $50,000 note paying 9 percent annual interest to replace the partially secured note payable. In addition, this creditor will receive 9,000 new shares of Holmess common stock.
• An outside investor will buy 10,000 new shares of common stock at $9 per share.
• The unsecured creditors will receive an offer of 40 cents on the dollar to settle the remaining liabilities.

Assume that all interested parties accept this plan of reorganization and it becomes effective. What journal entries will Holmes Corporation record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

1. Record the entry to adjust asset values to fair value

2. Record the note issued for accured salaries.

3. Record the settlement of partially secured debt.

4. Record the issue of new shares to the new investor.

5. Record the settlement of unsecured debts.

6. Record the entry to adjust additional paid in capital to appropriate balance, close out gain, and eliminate deficit balance.

Below is Correct but not complete

No	Transaction	General Journal	Debit	Credit
1	1	Goodwill	41,000
		Additional paid-in capital		41,000
2	2	Salary payable	38,000
		Note payable1 year		38,000
3	3	Notes payable	160,000
		Note payable6 years		50,000
		Common stock		72,000
		Additional paid-in capital
		Gain on discharge of debt
4	4	Cash	90,000
		Additional paid-in capital
		Common stock
5	5	Notes payable	70,000
		Accounts payable	30,000
		Accrued expenses	3,000
		Cash		41,200
		Gain on discharge of debt		61,800
6	6	Gain on discharge of debt
		Additional paid-in capital
		Retained earnings