Final Exam Fall 2017 Advanced Accounting Assume that the Bowie Company has the f

Question

Final Exam Fall 2017 Advanced Accounting Assume that the Bowie Company has the following trial balance just prior to emerging from bankruptey: Debit Credit S 50,000 Current assets Land Buildings Equipment Liabilities when the order for relief was granted Accounts payable Accrued expenses 100,000 400,000 250,000 S 160,000 50,000 Notes payable (due in 4 years)-Remeineain Notes payable (due in 3 years) Bonds payable (due in 5 years) Common stock (50.000 shares with a SI par value Additional paid-in capital Retained earnings (deficit) 3 00,000 600,000 50,000 40,000 400.000 Totals S 1,200,000 $1,200,000 Other Information . Assets The company's land has a fair value of $120,0oo, whereas the building is worth $50o,ooo. Other listed assets are worth the same as their book values. The reorganization value of the company's assets has been calculated to be S1 million on that day Liabilities The accounts payable and accrued expenses that were owed at that time will be converted into one-year notes with a face value of $70,0oo and an annual interest rate of io percent. The $300,00o in notes payable listed on the trial balance will be converted into a 1o-year $100,000 note paying annual interest of 8 percent. These note holders also get 20,000 shares of stock that the common stockholders are to turn in to the company. Finally, the $600,00o of bonds payable will be converted into 8-year, 9 percent notes with a face value of $430,00o. The bondholders also get 15.000 shares of common stock turned in by the current owners. A. Is Bowie Company required to use Fresh Start Accounting? Show your evidence. B. Prepare the journal entries for company emerging from bankruptcy using fresh start C. Prepare the resulting trial balance. accounting. Tautral entry for commen sbek Commen ShcK 500 turned in Common Lovnm em

Explanation / Answer

fresh accounting after reconstruction to reflect the results of reconstruction

Journal entry for reconstruction

1 Land. 20000

Reconstruction a/c. 20000

2. Building. 100000

Reconstruction. 100000

3. Accured expenses. 50000

Accounts payable 16000

To 10% notes payable.(one year)   70000

To reconstruction a/c. 140000

4. Notes payable a/c. (due in 3 years time). 300000

To 8% notes payble(due in 1year s time).    100000

To common stock a/c 20000 (20000* 1)

To reconstruction a/c 180000

5. Bond s payable. $600000

To 9% notes payable. $ 430000

To common stock $ 15000 (15000*1)

To reconstruction $ 155000

6. Common stock a/c 35000

To additional paid in capital 35000

6. Re construction $ 595000

To retain earnings $ 400000

To capital reserve. $ 195000

7. Goodwill. 80000

To capital reserve 80000

TRAIL BALANCE

Particulars debit. Credit

Current asset s. 50000

Land 120000

building. 500000

equipment 250000

goodwill. 80000

liabilties

10% notes payable. 70000

Notes payble (due in 4 years time). 100000

8%notes payable. 100000

9% notes payble 430000

common stock 50000

additional paid in capital 75000

capital reserve. 275000

Totals. 1000000. 1000000   

  

  

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