please solve for highlighted values - if you can provide formulas that would be helpful Holmes Corporation files a voluntary petition with the bankruptcy court in hopes of reorganizing. Company officials prepare a statement of financial affairs showing these debts: Liabilities with priority: Salaries payable $ 19,000 Fully secured creditors: Notes payable (secured by land and buildings valued at $85,000) 71,000 Partially secured creditors: Notes payable (secured by inventory valued at $31,000) 141,000 Unsecured creditors: Notes payable 51,000 Accounts payable 11,000 Accrued expenses 5,000 Holmes has 11,000 shares of common stock outstanding with a par value of $6 per share. In addition, the company currently reports a deficit balance of $153,000. In hopes of emerging from Chapter 11 bankruptcy, officials propose the following reorganization plan: The company’s assets have a total book value of $211,000, an amount considered to be equal to fair value. The reorganization value of business assets as a whole is set at $256,000. Employees will receive a one-year note in lieu of all salaries owed. Interest will be paid at a 9 percent annual rate, a normal rate for this type of liability. Future interest on the fully secured note will drop from a 14 percent annual rate, which is now unrealistic, to a 9 percent rate. The company will issue a new six-year $31,000 note paying 9 percent annual interest to replace the partially secured note payable. In addition, this creditor will receive 6,000 new shares of Holmes’s common stock. An outside investor will buy 7,000 new shares of common stock at $7 per share. The unsecured creditors will receive an offer of 30 cents on the dollar to settle the remaining liabilities. Assume that all interested parties accept this plan of reorganization and it becomes effective. What journal entries will Holmes Corporation record?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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please solve for highlighted values - if you can provide formulas that would be helpful

Holmes Corporation files a voluntary petition with the bankruptcy court in hopes of reorganizing. Company officials prepare a statement of financial affairs showing these debts:


Liabilities with priority:
Salaries payable	$	19,000
Fully secured creditors:
Notes payable (secured by land and buildings valued at $85,000)		71,000
Partially secured creditors:
Notes payable (secured by inventory valued at $31,000)		141,000
Unsecured creditors:
Notes payable		51,000
Accounts payable		11,000
Accrued expenses		5,000

Holmes has 11,000 shares of common stock outstanding with a par value of $6 per share. In addition, the company currently reports a deficit balance of $153,000.

In hopes of emerging from Chapter 11 bankruptcy, officials propose the following reorganization plan:

The company’s assets have a total book value of $211,000, an amount considered to be equal to fair value. The reorganization value of business assets as a whole is set at $256,000.
Employees will receive a one-year note in lieu of all salaries owed. Interest will be paid at a 9 percent annual rate, a normal rate for this type of liability.
Future interest on the fully secured note will drop from a 14 percent annual rate, which is now unrealistic, to a 9 percent rate.
The company will issue a new six-year $31,000 note paying 9 percent annual interest to replace the partially secured note payable. In addition, this creditor will receive 6,000 new shares of Holmes’s common stock.
An outside investor will buy 7,000 new shares of common stock at $7 per share.
The unsecured creditors will receive an offer of 30 cents on the dollar to settle the remaining liabilities.

Assume that all interested parties accept this plan of reorganization and it becomes effective. What journal entries will Holmes Corporation record?