Question

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 40,000 shares of common stock outstanding with a $320,000 par value. As part of the reorganization, the owners will contribute 26,000 shares of this stock back to the company. A retained earnings deficit balance of $471,000 exists at the time of this reorganization.

The company has the following asset accounts:

	Book Value		Fair Value
Accounts receivable	$	100,000	$	55,000
Inventory		112,000		100,000
Land and buildings		601,000		650,000
Equipment		57,000		42,000

The company's liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates.

Accounts payable of $90,000 will be settled with a note for $7,000. These creditors will also get 1,000 shares of the stock contributed by the owners.

Accrued expenses of $45,000 will be settled with a note for $6,000.

Note payable of $110,000 (due 2021) was fully secured and has not been renegotiated.

Note payable of $285,000 (due 2020) will be settled with a note for $60,000 and 14,000 shares of the stock contributed by the owners.

Note payable of $255,000 (due 2018) will be settled with a note for $81,000 and 11,000 shares of the stock contributed by the owners.

Note payable of $236,000 (due 2019) will be settled with a note for $120,000.

The company has a reorganization value of $944,000.

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.)

Answer 1

	Account	Explanation	Debit	Credit
1	Reorganization Account		72,000
	Accounts Receivables	=100,000-55,000		45,000
	Inventory	=112,000-100,000		12,000
	Equipment	=57,000-42,000		15,000
	To record reduction value of assets
2	Land and building	=650,000-601,000	49,000
	Reorganization Account			49,000
	To record increased value of asset.
3	Accounts Payable		90,000
	Bank			7,000
	Equity Share Capital	=1,000*8=8,000		8,000
	Reorganization Account			75,000
	To record settlement of AP by issuing of 1,000 shares and paid $7,000
4	Notes Payable(due 2021)		110,000
	Notes Payable(due 2020)		285,000
	Notes Payable(due 2018)		255,000
	Notes Payable(due 2019)		236,000
	Bank	=110,000+60,000+81,000+120,000		371,000
	Equity Share Capital	=(14,000+11,000)*8		200,000
	Reroganization Account			315,000
	To record settlement of Notes payable
5	Equity Share Capital	=26,000*8	208,000
	Reorganization Account			208,000
	To record surrender of 26,000 shares
6	Reorganization Account		471,000
	Profit & Loss A/c			471,000
	Reserves			104,000
	To record transfer of P & L balance to the Reorganization Account and balance in Reorganization account transfer to Resrves.