Bank B note payable: This note is secured by the development land. The land consists of two separate parcels with book values of $400,000 and $300,000. The $300,000 parcel was sold for $360,000 and it is estimated that the remaining parcel will have a net realizable value of $500,000.
Mortgage payable: This mortgage is secured by the manufacturing plant and other current assets with a book value of $130,000. The plant is currently listed for sale with an asking price of $1,800,000. Realistically, it is estimated that the plant could sell for $1,500,000 before commissions of $90,000. The other current assets securing the mortgage were sold for $100,000.
Other liabilities: $90,000 of these liabilities is secured by all receivables of the company. Receivables with a book value of $150,000 have been collected, and an additional $40,000 of allowance for uncollectible accounts has been established on the balance of the accounts. The $90,000 of other liabilities was paid. Of the remaining other liabilities, $95,000 is unsecured without priority, and the balance is unsecured with priority. Since year-end, $20,000 of the unsecured liabilities with priority has been paid out of available assets.
Additional assets with a net realizable value of $15,000 have been discovered, and administrative/legal expenses of $20,000 in connection with the liquidation have been incurred of which half have been paid.
Assuming that all of the above activity occurred within the first six months of the current year, prepare a statement of realization and liquidation to reflect the above activity and information.
Problem 21-5
Recording restructuring transactions. St. John Corporation is barely solvent and has been seeking an equity investor that would be interested in making a capital contribution so that the company would hopefully return to performance levels it had experienced in the past. At the end of the prior year, the company’s balance sheet was as follows:
Selected transactions occurring during the first six months of the current year were as follows:
a. Patents with a fair value of $230,000 were transferred to the officer in partial satisfaction of their note. The remaining balance on the note would be paid over five quarters with the first payment of $35,026.77 due on June 30 of the current year.
b. The mortgage payable was restructured with 40 quarterly payments of $51,178.05, beginning on June 30 of the current year, in addition to an immediate lump sum payment of $100,000.
c. The bank A note payable was restructured as follows: the development land with a net realizable value of $980,000 was conveyed along with marketable securities having a book value of $80,000 and a market value of $95,000. The balance of the note was to be over 10 quarters with payments of $111,145.03 beginning on June 30 of the current year.
d. The bank B note payable was partially secured by equipment which had a book value of $240,000 and a net realizable value of $220,000. The equipment was seized by the bank and the company agreed to settle the balance of the note by making 10 quarterly payments of $55,000 beginning on June 30 of the current year.
e. On June 30 of the current year all payments required by items (a) through (d) above were paid.
f. Common shareholders approved a reduction in par value from $10 per share to $5 per share and the deficit was eliminated.
Prepare all necessary entries to record the above transactions (a) through (f)