Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 74

Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy.It will apply fresh start accounting as of December 31, 2010.The company currently has 30,000 shares of common stock outstanding with a $240,000 par value.As part of the reorganization, the owners will contribute 18,000 shares of this stock back to the company.A retained earnings deficit balance of $330,000 exists at the time of this reorganization.
The company has the following asset accounts:
The company's liabilities will be settled as follows.Assume that all notes will be issued at reasonable interest rates.
The company's liabilities will be settled as follows.Assume that all notes will be issued at reasonable interest rates.
• Accounts payable of $80,000 will be settled with a note for $5,000.These creditors will also get 1,000 shares of the stock contributed by the owners.
• Accrued expenses of $35,000 will be settled with a note for $4,000.
• Note payable of $100,000 (due 2014) was fully secured and has not been renegotiated.
• Note payable of $200,000 (due 2013) will be settled with a note for $50,000 and 10,000 shares of the stock contributed by the owners.
• Note payable of $185,000 (due 2011) will be settled with a note for $71,000 and 7,000 shares of the stock contributed by the owners.
• Note payable of $200,000 (due 2012) will be settled with a note for $110,000.
The company has a reorganization value of $780,000.
Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding.