Reference no: EM133378711
Question: Here is the balance sheet of AB Electronics, on the date it filed for Chapter 11 reorganization.
| Assets | |
| Cash |
$10,000 |
| Receivables, net |
115,000 |
| Inventories |
200,000 |
| Buildings and equipment |
200,000 |
| Intangible assets |
600,000 |
| Total assets |
$1,125,000 |
| Liabilities and equity | |
| Accounts payable |
$300,000 |
| Notes payable (8%), due in 2 years |
100,000 |
| Loan payable (7%), due in 18 months |
500,000 |
| Capital stock |
250,000 |
| Retained deficit |
(25,000) |
| Total liabilities and equity |
$1,125,000 |
Provisions of the reorganization plan are as follows:
1. Write down reported assets to reflect actual value to the company, with balances as follows: Receivables, $100,000; buildings and equipment, $150,000; inventories, $180,000; and intangibles should be written off.
2. Exchange the 8% notes for $40,000 of new debt, and 20% of the new common stock.
3. Exchange the 7% loan for $210,000 of new debt, and 40% of the new common stock.
4. Exchange the accounts payable for $70,000 of new debt and 10% of the new common stock.
5. The old capital stock is canceled and replaced with a new common stock issue. The retained deficit is eliminated.
Required
Calculate the value of the new common stock, prepare the journal entries to record the restructuring, and present AB Electronics' balance sheet immediately after the restructuring.