Problem 10 Assume that the Bowie Company has the following trial balance just prior to emerging from bankruptcy: Debit Credit Current assets Land Buildings Equipment Liabilities when the order for relief was granted: Accounts payable Accrued expenses Notes payable (due in 4 years)-Remio ai Notes payable (due in 3 years) Bonds payable (due in 5 years) Common stock (50,000 shares with a S1 par value) Additional paid-in capital Retained earnings (deficit) Totals S 50,000 100,000 400,000 250,000 s 160,000 50,000 3 00,000 600,000 50,000 40,000 S 1,200.000 S 1,200.000 Other Information .Assets The company's land has a fair value of $120,000, whereas the building is worth $50o,ooo. Other listed assets are worth the same as their book values. The reorganization value of the company's assets has been calculated to be $1 million on that day. Liabilities The accounts payable and accrued expenses that were owed at that time will be converted into one-year notes with a face value of $70,000 and an annual interest rate of 1o percent. The $300,000 in notes payable listed on the trial balance will be converted into a 10-year $100,000 note paying annual interest of 8 percent. These note holders also get 20,000 shares of stock that the common stockholders are to turn in to the company. Finally, the $600,oo0 of bonds payable will be converted into 8-year, 9 percent notes with a face value of $430,00o. The bondholders also get 15,000 shares of common stock turned in by the current owners. Nok A. Is Bowie Company required to use Fresh Start Accounting? Show your evidence. B. Prepare the journal entries for company emerging from bankruptcy using fresh start accounting. Prepare the resulting trial balance. C. Problem 10 Assume that the Bowie Company has the following trial balance just prior to emerging from bankruptcy: Debit Credit Current assets Land Buildings Equipment Liabilities when the order for relief was granted: Accounts payable Accrued expenses Notes payable (due in 4 years)-Remio ai Notes payable (due in 3 years) Bonds payable (due in 5 years) Common stock (50,000 shares with a S1 par value) Additional paid-in capital Retained earnings (deficit) Totals S 50,000 100,000 400,000 250,000 s 160,000 50,000 3 00,000 600,000 50,000 40,000 S 1,200.000 S 1,200.000 Other Information .Assets The company's land has a fair value of $120,000, whereas the building is worth $50o,ooo. Other listed assets are worth the same as their book values. The reorganization value of the company's assets has been calculated to be $1 million on that day. Liabilities The accounts payable and accrued expenses that were owed at that time will be converted into one-year notes with a face value of $70,000 and an annual interest rate of 1o percent. The $300,000 in notes payable listed on the trial balance will be converted into a 10-year $100,000 note paying annual interest of 8 percent. These note holders also get 20,000 shares of stock that the common stockholders are to turn in to the company. Finally, the $600,oo0 of bonds payable will be converted into 8-year, 9 percent notes with a face value of $430,00o. The bondholders also get 15,000 shares of common stock turned in by the current owners. Nok A. Is Bowie Company required to use Fresh Start Accounting? Show your evidence. B. Prepare the journal entries for company emerging from bankruptcy using fresh start accounting. Prepare the resulting trial balance. C