Problem
Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2013. The company currently has 33,000 shares of common stock outstanding with a $231,000 par value. As part of the reorganization, the owners will contribute 22,000 shares of this stock back to the company. A retained earnings deficit balance of $349,000 exists at the time of this reorganization.
|
Book Value
|
Fair Value
|
|
Accounts receivable
|
106,000
|
83,000
|
|
Inventory
|
100,000
|
75,000
|
|
Land and buildings
|
448,000
|
500,000
|
|
Equipment
|
77,000
|
65,000
|
The company%u2019s liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates.
%u2022 Accounts payable of $83,000 will be settled with a note for $8,000. These creditors will also get 1,000 shares of the stock contributed by the owners.
%u2022 Accrued expenses of $38,000 will be settled with a note for $7,000.
%u2022 Note payable of $103,000 (due 2017) was fully secured and has not been renegotiated.
%u2022 Note payable of $225,000 (due 2016) will be settled with a note for $53,000 and 12,000 shares of the stock contributed by the owners.
%u2022 Note payable of $215,000 (due 2014) will be settled with a note for $74,000 and 9,000 shares of the stock contributed by the owners.
%u2022 Note payable of $185,000 (due 2015) will be settled with a note for $113,000.
The company has a reorganization value of $754,000.
Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.