olds company declares chapter 7 bankruptcy the following are the asset and liability 503394 | Homework Solutions
Olds Company declares Chapter 7 bankruptcy. The following are the asset and liability book values at that time; administrative expenses are estimated to be $12,000: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000 Accounts receivable. . . . . . . . . . . . . . . . 60,000 (worth $28,000) Inventory . . . . . . . . . . . . . . . . . . . . . . . . 70,000 (worth $56,000) Land (secures note A) . . . . . . . . . . . . . . 200,000 (worth $160,000) Building (secures bonds) . . . . . . . . . . . . 400,000 (worth $320,000) Equipment. . . . . . . . . . . . . . . . . . . . . . . 120,000 (worth unknown) Accounts payable . . . . . . . . . . . . . . . . . 180,000 Taxes payable to government. . . . . . . . 20,000 Note payable A . . . . . . . . . . . . . . . . . . . 170,000 Note payable B . . . . . . . . . . . . . . . . . . . 250,000 Bonds payable . . . . . . . . . . . . . . . . . . . . 300,000 The holders of note payable B want to collect at least $125,000. To achieve that goal, how much does the company have to receive in the liquidation of its equipment?
(1) Olds Company declares Chapter 7 bankruptcy. The following are the asset and liability book values at that time; administrative expenses are estimated to be $12,000: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000 Accounts receivable. . . . . . . . . . . . . . . . 60,000 (worth $28,000) Inventory . . . . . . . . . . . . . . . . . . . . . . . . 70,000 (worth $56,000) Land (secures note A) . . . . . . . . . . . . . . 200,000 (worth $160,000) Building (secures bonds) . . . . . . . . . . . . 400,000 (worth $320,000) Equipment. . . . . . . . . . . . . . . . . . . . . . . 120,000 (worth unknown) Accounts payable . . . . . . . . . . . . . . . . . 180,000 Taxes payable to government. . . . . . . . 20,000 Note payable A . . . . . . . . . . . . . . . . . . . 170,000 Note payable B . . . . . . . . . . . . . . . . . . . 250,000 Bonds payable . . . . . . . . . . . . . . . . . . . . 300,000 The holders of note payable B want to collect at least $125,000. To achieve that goal, how much does the company have to receive in the liquidation of its equipment? (2) Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: Book Value Fair Value Inventory . . . . . . . . . . . . . . . . . . . . . . $ 86,000 $ 50,000 Land and buildings . . . . . . . . . . . . . . . 250,000 400,000 Equipment . . . . . . . . . . . . . . . . . . . . . 123,000 110,000 The company has a reorganization value of $600,000. a. Describe the rules to determine whether to apply fresh start accounting to Kansas City. b. If fresh start accounting is appropriate, how will this companys assets be reported? c. If a Goodwill account is recognized in re-organization, where should it be reported? What happens to this balance?
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