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A company emerging from Chapter 11 reorganization has the following balance sheet: ...

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Question

Accounting

A company emerging from Chapter 11 reorganization has the following balance sheet:

Cash

$ 25,000

Postpetition liabilities

$ 200,000

Accounts receivable

60,000

Liabilities subject to compromise

1,500,000

Inventories

400,000

Common stock

300,000

Plant and equipment, net

1,200,000

Retained deficit

(315,000)

Total

$1,685,000

Total

$1,685,000

The plan of reorganization provides for the following:

*

Estimated reorganization value is $1,300,000.

*

Liabilities subject to compromise are replaced with $1,000,000 in notes payable and 80% of the new common stock issue.

*

Existing shareholders receive 20% of the new stock issue

*

Inventories and plant and equipment are written down to their fair values of $250,000 and $800,000, respectively.

*

There are no previously unreported identifiable intangible assets.

The entry to record restructuring of the interests of prior shareholders results in a credit to additional paid-in capital of:

A.

$300,000
B.

$280,000
C.

$220,000
D.

$200,000

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