Question
Lopez Inc. owned the following assets when it came out of Chapter 11 bankruptcy: Inventory: $375,000 (book value); $310,000 (fair value) Land $110,000 (book value);
Lopez Inc. owned the following assets when it came out of Chapter 11 bankruptcy:
Inventory: $375,000 (book value); $310,000 (fair value)
Land $110,000 (book value); $190,000 (fair value)
Buildings $227,000 (book value); $360,000 (fair value)
Equipment $405,000 (book value); $320,000 (fair value)
Lopez Inc. had a fresh start reorganization value of $1,350,000.
Required:
a) What amount of goodwill should have been recognized in recording the reorganization?
b) Briefly explain what occurs in the accounting records for fresh start accounting when a bank agrees to accept less than the debtors book value of a note payable? (This is a conceptual question.)
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