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46.(25 Minutes) (Prepare statement of realization and liquidation)
a. LITZ CORPORATION
Statement of Realization and Liquidation
Stock-
Liabilities Fully Partially Unsecured holders'
Noncash with Secured Secured Nonpriority Equity
Cash Assets Priority Creditors Creditors Liabilities (Deficits)
Payment is made on note from
proceeds of auction (48,000) (48,000)
Remaining debt is reclassified (84,000) 84,000
Administrative expenses incurred $15,000 (15,000)
Land and buildings all sold 315,000 (370,000) (55,000)
Administrative expenses paid (15 ,000) (15 ,000)
Final balances remaining for
unsecured creditors $214 ,000 - 0 - $34,000 - 0 - - 0 - $200 ,000
$(20,000)
b. Total amount available to pay
by each unsecured creditor
($180,000/$200,000) 90%
47.(40 Minutes) (Prepare journal entries for company emerging from bankruptcy
using fresh start accounting)
Becket Corporation must use fresh start accounting because the
reorganization value of $650,000 is less than the company's allowed debts and
the original owners hold less than 50 percent of the voting stock after the
reorganization.
BOOK VALUES AFTER EMERGING FROM REORGANIZATION
— Total assets = $637,000 (reorganization value of $650,000 plus proceeds
from sale of stock of $77,000 less $90,000 value of land and investments
used to settle two debts)
have a fair value of only $623,000, Goodwill must be established for $27,000.
JOURNAL ENTRIES
—Investments .................................................................. 14,000
Land .............................................................................. 23,000
Buildings ....................................................................... 52,000
Goodwill ........................................................................ 27,000
Accounts Receivable ............................................. 20,000
Inventory ................................................................. 16,000
Common Stock ($10 par value) ........................... 70,000
Additional Paid-In Capital .................................... 7,000
To record shares sold to new investor.
—Cash ............................................................................... 40,000
Investments ........................................................... 40,000
47. (continued)
—Notes Payable—Current .............................................. 220,000
Cash .......................................................................... 40,000
Notes Payable (due in 2019) ................................... 130,000
Retained Earnings (deficit) ..................................... 133,000
To adjust additional paid-in capital to
appropriate balance, close out gain, and
eliminate deficit balance as part of fresh start
accounting.
48.(40 Minutes) (Prepare statement of financial affairs and determine amounts to
be paid in liquidation)
a. OREGON CORPORATION
Statement of Financial Affairs
Available for
Book Unsecured
Values Assets Creditors
Pledged with Fully Secured Creditors:
$33,000 Land (Plots A and D) $43,000
Available for unsecured creditors $ 3,000
Estimated deficiency 47,000
$92,000 $50,000
Unsecured—
Book Nonpriority
Values Liabilities and Stockholders' Equity Liabilities
Liabilities with Priority:
-0- Administrative expenses (estimated) $16,000
$12,000 Salaries payable 12,000
Total (as shown above) $28,000
Fully Secured Creditors:
shown above) 20,000
(25,000)* Stockholders' equity
$92,000 $50,000
*Derived as a balancing figure.
48. (continued)
b. According to the statement of financial affairs prepared above, $3,000 cash
should be available for unsecured nonpriority creditors. Unfortunately, $50,000
c. As indicated in part b, only 6% of the unsecured nonpriority claims can be
satisfied. Thus, just $1,500 will be paid on the unsecured $25,000 note
payable.
d. Selling plot D for $30,000 rather than $27,000 generates an additional $3,000 in
available cash. The statement of financial affairs produced above would then
report $6,000 as the amount available for unsecured nonpriority claims or 12%
of the total ($6,000/$50,000). After plot B is sold for $11,000, the remaining
$4,000 of this note is classified as an unsecured nonpriority liability. Since
12% of this amount is to be paid, an additional $480 is transferred to the
holder of the note for a total of $11,480.
49.(40 Minutes) (Prepare a statement of financial affairs)
LYNCH, INC.
Statement of Financial Affairs
March 14, 2015
Available for
Book Unsecured
Values Assets Creditors
Pledged with Fully Secured Creditors:
$40,000 Land and building $75,000
Less: Notes payable (70,000) $5,000
(listed below) (22 ,000)
Available for unsecured creditors $53,000
Estimated deficiency 115,000
$195,000 $168,000
49. (continued)
Unsecured—
Book Nonpriority
Values Liabilities and Stockholders' Equity Liabilities
$195,000 $168,000
'1'
50. (30 Minutes) (Prepare a statement of realization and liquidation)
a. LYNCH, INC.
Statement of Realization and Liquidation
March 14, 2015 to July 23, 2015
Stock-
Liabilities Fully Partially Unsecured holders'
Noncash with Secured Secured Nonpriority Equity
Cash Assets Priority Creditors Creditors Liabilities (Deficits
Book balances, 3/14/15
Answer from Problem 45 $ 1,000 $194,000 $6,000 $70,000 $150,000 $ 37,000
$(68,000)
Accounts receivable collected
—remaining balance assumed
to be uncollectible 18,000 (25,000) (7,000)
Inventory sold 40,000 (100,000) (60,000)
Remaining partially secured
claims reclassified as
unsecured liabilities _______ (139,000) 139 ,000
Final balances remaining for
unsecured creditors $81 ,000 - 0 - $26,000 - 0 - - 0 - $186 ,000
$(131,000)
b. The statement of realization and liquidation prepared in (a) indicates that $81,000 in cash remains. $26,000 of
