Question

Dip Corporation is in a Chapter 11 bankruptcy reorganization. For each of the following transactions relating...

Dip Corporation is in a Chapter 11 bankruptcy reorganization. For each of the following transactions relating to the reorganization, show the journal entry that would be required by Dip. Assume that all unsecured liabilities were not reclassified to Prepetition Claims Subject to Compromise.

1. Dip has $200,000 in bonds payable which mature at the end of the current year. The bondholders agree to accept $100,000 of new common stock and $75,000 cash, payable immediately. 2. Accrued interest on the bonds recorded at $20,000 will not be paid. 3. Recorded patents in the amount of $15,000 are determined to be worthless and are written off. 4. Equipment recorded net at $24,000 is appraised at $30,000. 5. A building recorded net at $78,000 is appraised for $87,000. 6. Creditors owed $120,000 recorded in accounts payable are paid $96,000 in full settlement. 7. Property taxes and payroll taxes withheld are paid in full at $12,000. 8. A capital lease recorded at $48,000 is re-negotiated, and the resulting operating lease will require monthly lease payments of $500. 9. An unsecured bank note amounting to $180,000 will be exchanged for $120,000 note secured by the building and equipment. 10. Current stockholders will exchange their stock which has a current book value of $300,000 for $100,000 common stock of the new entity.

Business   Accounting   
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Answer #1

1>Bonds Payable$200,000

Common Stock$100,000

Cash 75,000

Gain on Debt Discharge 25,000

2>Accrued Interest Payable 20,000

Gain on Debt Discharge 20,000

3>Loss on Asset Revaluation 15,000

Patents 15,000

4>Equipment 6,000

Gain on Asset Revaluation 6,000

5>Building 9,000

Gain on Asset Revaluation 9,000

6>Accounts Payable 120,000

Cash 96,000

Gain on Debt Discharge 24,000

7>Taxes Payable 12,000

Cash 12,000

8>Capital Lease Liability 48,000

Gain on Debt Discharge 48,000

9>Debt – Unsecured 180,000

Debt – Secured 120,000

Gain on Debt Discharge 60,000

10>Common Stock (old) 300,000

Common Stock (new) 100,000

Additional Paid in Capital 200,000

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