80.2K

Verified Solution

Link Copied!

Please explain the steps, I do not understand how the values for the 3rd and 6th journal entry need to be recorded.

This all the info that the problem has provided

I have also tried setting the Additiional paid in capital in the third entry as 0 or 6000 but those values were incorrect as well.

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: $ 27,000 120,000 Liabilities with priority: Salaries payable Fully secured creditors: Notes payable (secured by land and buildings valued at $93, 000) Partially secured creditors: Notes payable (secured by inventory valued at $39,000) Unsecured creditors: Notes payable Accounts payable Accrued expenses 149,000 59,000 19,000 7,000 Holmes has 12,000 shares of common stock outstanding with a par value of $9 per share. In addition, the company currently reports a deficit balance of $89,000. In hopes of emerging from Chapter 11 bankruptcy, officials propose the following reorganization plan: . The company's assets have a total book value of $400,000, an amount considered to be equal to fair value. The reorganization value of business assets as a whole is set at $512,000. 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 $39,000 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 $10 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? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) Assume that all interested parties accept this plan of reorganization and it becomes effective. What journal entries will Holmes Corporation record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) Answer is complete but not entirely correct. No Transaction Debit Credit 1 1 General Journal Goodwill Additional paid-in capital 112,000 112,000 2 2 27,000 Salary payable Note payable-1 year 27,000 3 3 149,000 Notes payable Note payable6 years Common stock Additional paid-in capital Gain on discharge of debt 39,000 54,000 7,000 X 49,000 4 4 70,000 Cash Additional paid-in capital Common stock 7,000 63,000 5 5 Notes payable Accounts payable Accrued expenses Cash Gain on discharge of debt 59,000 19,000 7,000 25,500 59,500 6 6 75,000 X Gain on discharge of debt Additional paid-in capital Retained earnings 14,000 X 89,000 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: $ 27,000 120,000 Liabilities with priority: Salaries payable Fully secured creditors: Notes payable (secured by land and buildings valued at $93, 000) Partially secured creditors: Notes payable (secured by inventory valued at $39,000) Unsecured creditors: Notes payable Accounts payable Accrued expenses 149,000 59,000 19,000 7,000 Holmes has 12,000 shares of common stock outstanding with a par value of $9 per share. In addition, the company currently reports a deficit balance of $89,000. In hopes of emerging from Chapter 11 bankruptcy, officials propose the following reorganization plan: . The company's assets have a total book value of $400,000, an amount considered to be equal to fair value. The reorganization value of business assets as a whole is set at $512,000. 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 $39,000 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 $10 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? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) Assume that all interested parties accept this plan of reorganization and it becomes effective. What journal entries will Holmes Corporation record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) Answer is complete but not entirely correct. No Transaction Debit Credit 1 1 General Journal Goodwill Additional paid-in capital 112,000 112,000 2 2 27,000 Salary payable Note payable-1 year 27,000 3 3 149,000 Notes payable Note payable6 years Common stock Additional paid-in capital Gain on discharge of debt 39,000 54,000 7,000 X 49,000 4 4 70,000 Cash Additional paid-in capital Common stock 7,000 63,000 5 5 Notes payable Accounts payable Accrued expenses Cash Gain on discharge of debt 59,000 19,000 7,000 25,500 59,500 6 6 75,000 X Gain on discharge of debt Additional paid-in capital Retained earnings 14,000 X 89,000

Answer & Explanation Solved by verified expert

See Answer