Reference no: EM132886863

Question - The Fairway Company has filed Chapter 11 bankruptcy. The Company has 25,000 shares of stock outstanding with a par value of $10 per share. As part of the reorganization, the stockholders will contribute 20,000 shares back to the Company. At the time of the reorganization, the Company's assets book balances were as follows:

Accounts receivable 100,000

Inventories 220,000

Land 800,000

Trademark 150,000

The Company had a deficit (negative retained earnings) at the date of the reorganization of $420,000.

The Company determined that the fair value of the receivables and inventories were 75% of their book values. The land fair value was 150% of it's book value and the trademarks fair value was 200% of it's book value.

The Company's total assets had a reorganization value of $1,900,000.

The Company's liabilities prior to reorganization were as follows:

Accounts payable 350,000

Note Payable-A 200,000

Note Payable-B 390,000

Note Payable-C 500,000

These liabilities were settled as follows:

Accounts Payable- received a new note for $200,000 and 2,000 shares of the stock contributed by the stockholders.

Each of the Note holders received a new note for 40% of the original balance plus 1/3 of the remaining shares contributed by the stockholders

Required -

A. How do set up a balance sheet just prior to the reorganization?

B. Using "Fresh Start Accounting" set up a balance sheet just after the reorganization.

C. What are all journal entries necessary to record "Fresh Start Accounting".