Book Value Falr Value Accounts receivable.. 143,000 250,000 144,000 100,000 111,000 278,000 Inventory..... Land and buildings. Machinery.. Patents 121,000 125,000
Smith Corporation has gone through bankruptcy and is ready to emerge as a reorganized entity on December 31, 2017. On this date, the company has the following assets (fair value is based on dis-counting the anticipated future
The company has a reorganization value of $800,000.
Smith has 50,000 shares of $10 par value common stock outstanding. A deficit
The company’s liabilities will be settled as follows:
• Accounts payable of $180,000 (existing at the date on which the order for relief was granted) will be settled with an 8 percent, two-year note for $35,000.
• Accounts payable of $97,000 (incurred since the date on which the order for relief was granted) will be paid in the regular course of business.
• Note payable—First Metropolitan Bank of $200,000 will be settled with an 8 percent, five-year note for $50,000 and 15,000 shares of the stock contributed by the owners.
• Note payable—Northwestern Bank of Tulsa of $350,000 will be settled with a 7 percent, eight-year note for $100,000 and 15,000 shares of the stock contributed by the owners.
a. How does Smith Corporation’s accountant know that fresh start accounting must be utilized?
b. Prepare a
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