Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2024, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act: BECKET CORPORATION Balance Sheet November 10, 2024 Assets Cash $ 30,000 Accounts receivable (net) 79,000 Investments 44,000 Inventory (net realizable value is expected to approximate 80% of cost) 98,000 Land 75,000 Buildings (net) 281,000 Equipment (net) 129,000 Total assets $ 736,000 Liabilities and Equities Accounts payable $ 177,000 Notes payable—current (secured by equipment) 251,000 Notes payable—(due in 2027) (secured by land and buildings) 343,000 Common stock ($10 par value) 50,000 Retained earnings (deficit) (85,000) Total liabilities and equities $ 736,000 The company has presented the following proposal: Accounts receivable of $44,000 are written off as uncollectible. Investments are worth $76,000, land is worth $116,000, the buildings are worth $336,000, and the equipment is worth $104,000. An outside investor has been found who will buy 5,000 shares of common stock at $11 per share. The company’s investments are to be sold for $76,000 in cash with the proceeds going to the holders of the current note payable. The remainder of these short-term notes will be converted into notes payable with a face value of $148,000 that comes due in 2028. The note pays 10 percent annual cash interest. All accounts payable will be exchanged for $58,000 in notes payable due in 2025 that pay 8 percent annual cash interest. Title to land costing $38,000 but worth $68,000 will be transferred to the holders of the note payable due in 2027. These creditors will also receive $193,000 in notes payable (paying 10 percent annual interest) coming due in 2031. These creditors will also receive 2,000 shares of previously unissued common stock. Becket retains the remainder of its land. The reorganization value of the company’s assets prior to issuing additional shares, selling the company’s investments, and conveying title to the land is set at $824,000 based on discounted future cash flows. Prepare journal entries for Becket to record the transactions put forth in this reorganization plan. (Record the adjustment entry to change asset values to fair value. Record the issue of new share to new investor. Record sale of the investments. Record the settlement of current notes. Record the settlement of accounts payable. Record the settlement of long-term debt. Record the entry to adjust additional paid in capital to appropriate balance, close out gain, and eliminate deficit balance.)

Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2024, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act: BECKET CORPORATION Balance Sheet November 10, 2024 Assets Cash $ 30,000 Accounts receivable (net) 79,000 Investments 44,000 Inventory (net realizable value is expected to approximate 80% of cost) 98,000 Land 75,000 Buildings (net) 281,000 Equipment (net) 129,000 Total assets $ 736,000 Liabilities and Equities Accounts payable $ 177,000 Notes payable—current (secured by equipment) 251,000 Notes payable—(due in 2027) (secured by land and buildings) 343,000 Common stock ($10 par value) 50,000 Retained earnings (deficit) (85,000) Total liabilities and equities $ 736,000 The company has presented the following proposal: Accounts receivable of $44,000 are written off as uncollectible. Investments are worth $76,000, land is worth $116,000, the buildings are worth $336,000, and the equipment is worth $104,000. An outside investor has been found who will buy 5,000 shares of common stock at $11 per share. The company’s investments are to be sold for $76,000 in cash with the proceeds going to the holders of the current note payable. The remainder of these short-term notes will be converted into notes payable with a face value of $148,000 that comes due in 2028. The note pays 10 percent annual cash interest. All accounts payable will be exchanged for $58,000 in notes payable due in 2025 that pay 8 percent annual cash interest. Title to land costing $38,000 but worth $68,000 will be transferred to the holders of the note payable due in 2027. These creditors will also receive $193,000 in notes payable (paying 10 percent annual interest) coming due in 2031. These creditors will also receive 2,000 shares of previously unissued common stock. Becket retains the remainder of its land. The reorganization value of the company’s assets prior to issuing additional shares, selling the company’s investments, and conveying title to the land is set at $824,000 based on discounted future cash flows. Prepare journal entries for Becket to record the transactions put forth in this reorganization plan. (Record the adjustment entry to change asset values to fair value. Record the issue of new share to new investor. Record sale of the investments. Record the settlement of current notes. Record the settlement of accounts payable. Record the settlement of long-term debt. Record the entry to adjust additional paid in capital to appropriate balance, close out gain, and eliminate deficit balance.)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...

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Question

Assets
BECKET CORPORATION
Balance Sheet
November 10, 2024
Cash	$ 30,000
Accounts receivable (net)	79,000
Investments	44,000
Inventory (net realizable value is expected to approximate 80% of cost)	98,000
Land	75,000
Buildings (net)	281,000
Equipment (net)	129,000
Total assets	$ 736,000
Liabilities and Equities
Accounts payable	$ 177,000
Notes payable—current (secured by equipment)	251,000
Notes payable—(due in 2027) (secured by land and buildings)	343,000
Common stock ($10 par value)	50,000
Retained earnings (deficit)	(85,000)
Total liabilities and equities	$ 736,000

The company has presented the following proposal:

Accounts receivable of $44,000 are written off as uncollectible. Investments are worth $76,000, land is worth $116,000, the buildings are worth $336,000, and the equipment is worth $104,000.
An outside investor has been found who will buy 5,000 shares of common stock at $11 per share.
The company’s investments are to be sold for $76,000 in cash with the proceeds going to the holders of the current note payable. The remainder of these short-term notes will be converted into notes payable with a face value of $148,000 that comes due in 2028. The note pays 10 percent annual cash interest.
All accounts payable will be exchanged for $58,000 in notes payable due in 2025 that pay 8 percent annual cash interest.
Title to land costing $38,000 but worth $68,000 will be transferred to the holders of the note payable due in 2027. These creditors will also receive $193,000 in notes payable (paying 10 percent annual interest) coming due in 2031. These creditors will also receive 2,000 shares of previously unissued common stock. Becket retains the remainder of its land.
The reorganization value of the company’s assets prior to issuing additional shares, selling the company’s investments, and conveying title to the land is set at $824,000 based on discounted future cash flows.

Prepare journal entries for Becket to record the transactions put forth in this reorganization plan. (Record the adjustment entry to change asset values to fair value. Record the issue of new share to new investor. Record sale of the investments. Record the settlement of current notes. Record the settlement of accounts payable. Record the settlement of long-term debt. Record the entry to adjust additional paid in capital to appropriate balance, close out gain, and eliminate deficit balance.)

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