Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It w

Question

Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2015. The company currently has 22,000 shares of common stock outstanding with a $154,000 par value. As part of the reorganization, the owners will contribute 20,000 shares of this stock back to the company. A retained earnings deficit balance of $385,000 exists at the time of this reorganization.

The company's liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates.

Accounts payable of $92,000 will be settled with a note for $9,000. These creditors will also get 3,000 shares of the stock contributed by the owners.

Accrued expenses of $47,000 will be settled with a note for $8,000.

Note payable of $112,000 (due 2019) was fully secured and has not been renegotiated.

Note payable of $214,000 (due 2018) will be settled with a note for $62,000 and 10,000 shares of the stock contributed by the owners.

Note payable of $201,000 (due 2016) will be settled with a note for $83,000 and 7,000 shares of the stock contributed by the owners.

Note payable of $202,000 (due 2017) will be settled with a note for $122,000.

Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding.

Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2015. The company currently has 22,000 shares of common stock outstanding with a $154,000 par value. As part of the reorganization, the owners will contribute 20,000 shares of this stock back to the company. A retained earnings deficit balance of $385,000 exists at the time of this reorganization.

Explanation / Answer

Accounts Title Dr Cr a Accounts Payable 92000 Note Payable 9000 Common Stock (154000/22000*3000) 21000 Gain on Discharge of Debt 62000 (to record the settlement of Accoun ts payable) b Accured Expenses 47000 Note payable 8000 Gain on Discharge of Debt 39000 c No entry required d Note payble (due 2018) 214000 Note payable 62000 Common Stock (154000/22000*10000) 70000 Gain on Discharge of Debt 82000 e Note payble (due 2016) 201000 Note payable 83000 Common Stock (154000/22000*7000) 49000 Gain on Discharge of Debt 69000 f Note payble (due 2017) 202000 Note payable 122000 Gain on Discharge of Debt 80000 Now we will reduce the Retained earnings deficit Gain on Discharge of Debt 332000 Retained Earnings 332000 (all gains added and trasferred to retained earnings)

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