Problem 10 2 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 $34,000 Accounts Receivable $74,200 Less Allowance for Uncollectibles 16,600 57,600 Inventory 125,600 Property and Equipment 307,400 Less Accumulated Depreciation 166,100 141,300 Land 20,200 Patents 93,000 Total Assets $471,700 Current Liabilities Accounts PayableUnsecured $148,400 12 Notes PayableUnsecured 59,000 Accrued Wageswith Priority 11,800 Interest Payable 35,900 Total Current Liabilities 255,100 10 Note PayableUnsecured 56,700 9 Mortgage PayableSecured by Equipment 74,000 Stockholders Equity Common Stock, $ 50 par value, 2,500,000 Shares Authorized, 468,000 shares issued and Outstanding 234,000 Retained Earnings (deficit) (148,100 ) Total Equities $471,700 The terms of the reorganization plan are as follows 1 Creditors represented by $69,000 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 $47,000 2 Creditors represented by $54,000 of the unsecured accounts payable agree to accept a patent with a book value of $39,000 and a fair value of $48,000 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 , $59,000 note (on which there is $6,100 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 ($65,100), payable annually 5 The holder of the 10 , $56,700 unsecured note (on which there is $11,900 accrued interest) agreed to cancel the accrued interest and $14,100 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 , $74,000 mortgage note (on which there is $17,900 accrued interest) agreed to accept 110,000 shares of common stock in exchange for full satisfaction of the debt The common stock has a fair value of $0 55 per share 7 The par value of the common stock is reduced to $ 10 per share and any remaining accumulated deficit is eliminated No Account Titles and Explanation Debit Debit Credit Credit 1 (To adjust receivables to fair value) (To record settlement of unsecured creditors against receivables) 2 (To adjust patent to fair value) (To record settlement of unsecured creditors against patents) 3 3 (To records payment of accrued wages) (To record settlement of remaining unsecured creditors) 4 (To record restructure of notes payable) 5 (To record restructure of notes payable) 6 (To record settlement of mortgage note) 7 (To record reduction of par value of common stock) Click if you would like to Show Work for this question Open Show Work

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Problem 10-2 On September 30, 2014, SRP Company filed a petition for reorganization with a bankruptcy court. The plan was approved by the court and

Problem 10-2

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		$34,000
Accounts Receivable	$74,200
Less: Allowance for Uncollectibles	16,600	57,600
Inventory		125,600
Property and Equipment	307,400
Less: Accumulated Depreciation	166,100	141,300
Land		20,200
Patents		93,000
Total Assets		$471,700
Current Liabilities
Accounts PayableUnsecured		$148,400
12% Notes PayableUnsecured		59,000
Accrued Wageswith Priority		11,800
Interest Payable		35,900
Total Current Liabilities		255,100
10% Note PayableUnsecured		56,700
9% Mortgage PayableSecured by Equipment		74,000
Stockholders Equity
Common Stock, $.50 par value, 2,500,000
Shares Authorized, 468,000 shares issued and Outstanding		234,000
Retained Earnings (deficit)		(148,100	)
Total Equities		$471,700

The terms of the reorganization plan are as follows:

1.		Creditors represented by $69,000 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 $47,000.
2.		Creditors represented by $54,000 of the unsecured accounts payable agree to accept a patent with a book value of $39,000 and a fair value of $48,000 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%, $59,000 note (on which there is $6,100 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 ($65,100), payable annually.
5.		The holder of the 10%, $56,700 unsecured note (on which there is $11,900 accrued interest) agreed to cancel the accrued interest and $14,100 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%, $74,000 mortgage note (on which there is $17,900 accrued interest) agreed to accept 110,000 shares of common stock in exchange for full satisfaction of the debt. The common stock has a fair value of $0.55 per share.
7.		The par value of the common stock is reduced to $.10 per share and any remaining accumulated deficit is eliminated.

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No. Account Titles and Explanation Debit Debit Credit Credit 1. (To adjust receivables to fair value) (To record settlement of unsecured creditors against receivables) 2. (To adjust patent to fair value) (To record settlement of unsecured creditors against patents) 3. 3. (To records payment of accrued wages) (To record settlement of remaining unsecured creditors) 4. (To record restructure of notes payable) 5. (To record restructure of notes payable) 6. (To record settlement of mortgage note) 7. (To record reduction of par value of common stock) Click if you would like to Show Work for this question: Open Show Work