Reorganization Entries and Balance Sheet

On September 30, 2008, SRP Company filed a petition for reorganization with a bankruptcy court. The plan was approved by the court and all parties of interest on January 2, 2009, when SRP Company’s balance sheet was as follows:

SRP Company Balance Sheet January 2, 2009



Accounts receivable


Less: allowance for uncollectibles




Plant & Equipment


Less: Accumulated depreciation







Total Assets


Current liabilities

Accounts payable-unsecured

12% Notes payable-unsecured


Accrued Wages-with priority


Accured Interest payable


Total current liabilities


10% note payable-unsecured


9% mortgage note payable-secured by equipment


Stockholders’ Equity

Common stock $ .50 par value, 2,500,000

Shares Authorized, $480,000 shares issued and Outstanding 240,000

Retained Earnings (deficit) (156,800)

Total Equities 467,600

The terms of the organization plan are as follows:

1. Creditors represented by $69,000 of the unsecured accounts payable agree to accepts the accounts receivable of SRP Company in full settlements of their claims. The fair value of the receivables is $51,000.

2. Creditors represented by $54,000 of the unsecured accounts payable agree to accept a patent with a book value of $42,000 and a fair value of $50,000 in full settlement of their claims.

3. Creditors of the remaining unsecured accounts payable agree to accept $.60 on the dollar. Cash is paid to these creditors and to the creditors with priority.

4. The creditors holding the 12%, $57,000 note (on which there is $11,900) accrued interest ) agreed to extend the due date for two years from January 3,2009, and to reduce the interest rate to 6% on the current carrying value of the debt ($63,000), payable annually.

5. the holder of the 10%, $54,400 unsecured note (on which these is $11,900 accured interest ) agreed to cancel the accrued interest and $14,400 of the principal; interest on the new note at 10% is due annually, with the principal due on January 3,2012.

6. the holder of the 9%, $80,000 mortgage note (on which there is $20,500 accrued interest) agreed to accept 100,000 shares of the common stock in exchange for full satisfaction of the debt. The common stock had a fair value of $.59 per share.

7. the par value of the common stock is reduced to $.10 per share and any remaining accumulated deficit is eliminated.


A. Prepare a journal entries to give effect to the reorganization.

B. Prepare a post-reorganization balance sheet dated January 2, 2009

C. Prepare journal entries to accrue interest on December 31, 2009, and to record the payment of interest on January 2, 2010