Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2017. The company currently has 37,000 shares of common stock outstanding with a $259,000 par value. As part of the reorganization, the owners will contribute 21,000 shares of this stock back to the company. A retained earnings deficit balance of $372,000 exists at the time of this reorganization. The company has the following asset accounts: Book Value Fair Value Accounts receivable $ 74,000 $ 52,000 Inventory 101,000 79,000 Land and buildings 503,000 550,000 Equipment 81,000 70,000 The company's liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates. Accounts payable of $87,000 will be settled with a note for $12,000. These creditors will also get 2,000 shares of the stock contributed by the owners. Accrued expenses of $42,000 will be settled with a note for $11,000. Note payable of $107,000 (due 2021) was fully secured and has not been renegotiated. Note payable of $202,000 (due 2020) will be settled with a note for $57,000 and 11,000 shares of the stock contributed by the owners. Note payable of $192,000 (due 2018) will be settled with a note for $78,000 and 8,000 shares of the stock contributed by the owners. Note payable of $242,000 (due 2019) will be settled with a note for $117,000. The company has a reorganization value of $826,000. Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Record the adjustment entry to change asset values to fair value.
Record the forfeiture of shares according to the reorganization plan.
Record the settlement of accounts payable as per reorganization plan.
Record the settlement of accrued expenses.
Record the settlement of notes payable due in 2020.
Record the settlement of notes payable due in 2018.
Record the settlement of notes payable due in 2019.
Record the closing entry of gain on debt discharge account.
Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2017. The company currently has 37,000 shares of common stock outstanding with a $259,000 par value. As part of the reorganization, the owners will contribute 21,000 shares of this stock back to the company. A retained earnings deficit balance of $372,000 exists at the time of this reorganization. The company has the following asset accounts: Book Value Fair Value Accounts receivable $ 74,000 $ 52,000 Inventory 101,000 79,000 Land and buildings 503,000 550,000 Equipment 81,000 70,000 The company's liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates. Accounts payable of $87,000 will be settled with a note for $12,000. These creditors will also get 2,000 shares of the stock contributed by the owners. Accrued expenses of $42,000 will be settled with a note for $11,000. Note payable of $107,000 (due 2021) was fully secured and has not been renegotiated. Note payable of $202,000 (due 2020) will be settled with a note for $57,000 and 11,000 shares of the stock contributed by the owners. Note payable of $192,000 (due 2018) will be settled with a note for $78,000 and 8,000 shares of the stock contributed by the owners. Note payable of $242,000 (due 2019) will be settled with a note for $117,000. The company has a reorganization value of $826,000. Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Record the adjustment entry to change asset values to fair value.
Record the forfeiture of shares according to the reorganization plan.
Record the settlement of accounts payable as per reorganization plan.
Record the settlement of accrued expenses.
Record the settlement of notes payable due in 2020.
Record the settlement of notes payable due in 2018.
Record the settlement of notes payable due in 2019.
Record the closing entry of gain on debt discharge account.
Related questions
Complex Balance Sheet
Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporation'sbookkeeper.
| Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 | ||||
| Assets | Liabilities and Shareholders' Equity | |||
| Cash | $225,000 | Accounts payable | $133,800 | |
| Accounts receivable (net) | 345,700 | Mortgage payable | 900,000 | |
| Inventories | 560,000 | Notes payable | 500,000 | |
| Prepaid income taxes | 40,000 | Lawsuit liability | 80,000 | |
| Investments | 57,700 | Income taxes payable | 61,200 | |
| Land | 450,000 | Deferred tax liability | 28,000 | |
| Building | 1,750,000 | Accumulated depreciation | 420,000 | |
| Machinery and equipment | 1,964,000 | Total Liabilities | $2,123,000 | |
| Goodwill | 37,000 | Common stock, $50 par; 40,000 shares issued | $2,231,000 | |
| Total Assets | $5,429,400 | Retained earnings | 1,075,400 | |
| Total Shareholders' Equity | $3,306,400 | |||
| Total Liabilities and Shareholders' Equity | $5,429,400 | |||
Your company has been engaged to perform an audit, during whichyou discover the following information:
Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customer's $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.
Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeus's president.
During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.
Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.
On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.
The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.
The lawsuit liability will be paid in 2017.
Of the total deferred tax liability, $5,000 is considered acurrent liability.
The current income tax expense reported in Zeus's 2016 incomestatement was $61,200.
The company was authorized to issue 100,000 shares of $50 parvalue common stock.
Required:
Prepare a corrected classified balance sheet as of December 31,2016.
