GEN COMBO ADVANCED ACCOUNTING; CONNECT ACCESS CARD
13th Edition
ISBN: 9781260087383
Author: Joe Ben Hoyle
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 53P
Holmes Corporation has filed a voluntary petition with the bankruptcy court in hopes of reorganizing. A statement of financial affairs has been prepared for the company showing these debts:
| Liabilities with priority: | |
| Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 18,000 |
| Fully secured creditors: | |
| Notes payable (secured by land and buildings valued at $84,000) . . | 70,000 |
| Partially secured creditors: | |
| Notes payable (secured by inventory valued at $30,000) . . . . . . . . . . . | 140,000 |
| Unsecured creditors: | |
| Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 50,000 |
| Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 10,000 |
| Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4,000 |
Holmes has 10,000 shares of common stock outstanding with a par value of $5 per share. In addition, it is currently reporting a deficit balance of $132,000.
Company officials have proposed the following reorganization plan:
- The company’s assets have a total book value of $210,000, an amount considered to be equal to fair value. The reorganization value of the assets as a whole, though, is set at $225,000.
- Employees will receive a one-year note in lieu of all salaries owed. Interest will be 10 percent, a normal rate for this type of liability.
- The fully secured note will have all future interest dropped from a 15 percent rate, which is now unrealistic, to a 10 percent rate.
- The partially secured note payable will be satisfied by signing a new 6-year $30,000 note paying 10 percent annual interest. In addition, this creditor will receive 5,000 new shares of Holmes’s common stock.
- An outside investor has been enlisted to buy 6,000 new shares of common stock at $6 per share.
- The unsecured creditors will be offered 20 cents on the dollar to settle the remaining liabilities.
If this plan of reorganization is accepted and becomes effective, what
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The Sunshine Company has the following data in connection with its bankruptcy petition with the Securities and Exchange Commission at the end of 2018.
Unsecured creditorsP287.500.
Liabilities with priority137,500
Secured Liabilities
Debt 1, P262,500; value of pledged asset 225,000
Debt 2, P212,500, value of pledged asset 125,000
Debt 3, P150,000, value of pledged asset 175,000'
The company also has a number of other assets that are not pledge in any way, The creditors holding Debt 2 want to receive at least P177,50
Required: For how much do these free assets have to be sold so that Debt 2 would receive exactly P177,500.
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The creditors of Chester Company agree to accept promissorynotes for the amount of its indebtedness with a provisothat two-thirds of the annual profits must be appliedto their liquidation. How should these notes be reportedon the balance sheet of the issuing company? Give a reasonfor your answer.
Chapter 13 Solutions
GEN COMBO ADVANCED ACCOUNTING; CONNECT ACCESS CARD
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