On September 30, 2014, 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, 2015, when SRP Companys balance sheet was as follows: | SRP Company Balance Sheet January 2, 2015 | | Cash | | | | $32,500 | | | Accounts Receivable | | $69,300 | | | | | Less: Allowance for Uncollectibles | | 18,300 | | 51,000 | | | Inventory | | | | 132,300 | | | Property and Equipment | | 302,900 | | | | | Less: Accumulated Depreciation | | 168,800 | | 134,100 | | | Land | | | | 21,300 | | | Patents | | | | 83,000 | | | Total Assets | | | | $454,200 | | | Current Liabilities | | | | | | | Accounts PayableUnsecured | | | | $147,200 | | | 12% Notes PayableUnsecured | | | | 61,000 | | | Accrued Wageswith Priority | | | | 11,600 | | | Interest Payable | | | | 39,400 | | | Total Current Liabilities | | | | 259,200 | | | 10% Note PayableUnsecured | | | | 51,200 | | | 9% Mortgage PayableSecured by Equipment | | | | 80,000 | | | Stockholders Equity | | | | | | | Common Stock, $.50 par value, 2,500,000 | | | | | | | Shares Authorized, 489,000 shares issued and Outstanding | | | | 244,500 | | | Retained Earnings (deficit) | | | | (180,700 | ) | | Total Equities | | | | $454,200 | | The terms of the reorganization plan are as follows: | 1. | | Creditors represented by $68,000 of the unsecured accounts payable agree to accept the accounts receivable of SRP Company in full settlement of their claims. The fair value of the receivables is $48,000. | | 2. | | Creditors represented by $57,000 of the unsecured accounts payable agree to accept a patent with a book value of $43,000 and a fair value of $50,000 in full settlement of their claims. | | 3. | | Creditors of the remaining unsecured accounts payable agree to accept $0.60 on the dollar. Cash is paid to these creditors and to the creditors with priority. | | 4. | | The creditor holding the 12%, $61,000 note (on which there is $6,400 accrued interest) agreed to extend the due date for two years from January 3, 2015, and to reduce the interest rate to 6% on the current carrying value of the debt ($67,400), payable annually. | | 5. | | The holder of the 10%, $51,200 unsecured note (on which there is $11,500 accrued interest) agreed to cancel the accrued interest and $15,100 of the principal; interest on the new note at 10% is due annually, with the principal due on January 3, 2018. | | 6. | | The holder of the 9%, $80,000 mortgage note (on which there is $21,500 accrued interest) agreed to accept 100,000 shares of common stock in exchange for full satisfaction of the debt. The common stock has a fair value of $0.61 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 journal entries to give effect to the reorganization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) This question also has 2 more parts to answer (B, C) buy the system is not revealing it until one answers to part (A) |
