Problem 10-1

1.

2.

Accounts Payable
Cash ($71,600 .42)
Gain on Restructuring of Debt

71,600

Allowance for Uncollectible Accounts

Loss on Transfer of Assets
Accounts Receivable ($92,000 - $69,000)

19,450
3,550

Accounts Payable
Accounts Receivable
Gain on Restructuring of Debt ($132,400 - $69,000)
3.
4.

Accrued Expenses
Cash

30,072
41,528

23,000
132,400
69,000
63,400
14,620
14,620

Notes Payable
Accrued Interest Payable
Cash
Restructured Debt
Gain on Restructuring of Debt ($327,000 - $309,000)

300,000
27,000
9,000
300,000
18,000

Problem 10-2
Part A
1.
Allowance for Uncollectibles
Loss on Transfer of Assets
Accounts Receivable ($71,450 - $51,000)
Accounts Payable
Accounts Receivable
Gain on Restructuring of Debt
2.

3.

16,750
3,700
20,450
69,000
51,000
18,000

Patents
Gain on Transfer of Asset ($50,000 - $42,000)

8,000

Accounts Payable
Patents
Gain on Restructuring of Debt

54,000

Accrued Wages
Cash

11,900

Accounts Payable ($142,700 - $69,000 - $54,000)

Cash ( .6 $19,700)
Gain on Restructuring of Debt

19,700

10 - 1

8,000
50,000
4,000
11,900
11,820
7,880

4.

Notes Payable
Accrued Interest Payable
Restructured Debt due 1/3/14

57,000
6,000

Total future cash payments:

Principal
Interest (6% $63,000) 2
Total
Carrying value
No gain recognized
5.

$63,000
7,560
70,560
$63,000

Notes Payable
Accrued Interest Payable
Restructured Debt due 1/3/15
Gain on Restructuring of Debt

54,400
11,900

Total future cash payments:

Principal ($54,400 - $14,400)
Interest (10% $40,000) 3
Total
Carrying value ($54,400 + $11,900)
Gain on Restructuring
6.

7,

Mortgage Note Payable

Accrued Interest Payable
Common Stock (100,000 $0.50)
Paid-in Capital in Excess of Par
Gain on Restructuring of Debt ($100,500 (100,000 $.59)
Common Stock ($290,000 (580,000 $.10)
Retained Earnings
Paid-in Capital in Excess of Par

Balance 1/2/12
Loss on transfer (1)

Balance

63,000

Retained Earnings
156,800Gain on restructuring (1)
3,700Gain on transfer (2)
Gain on restructuring (2)
Gain on restructuring (3)
Gain on restructuring (5)
Gain on restructuring (6)
66,820

10 - 2

52,000
14,300

$40,000
12,000
52,000
66,300
$14,300
80,000
20,500
50,000
9,000
41,500
232,000
66,820
165,180

18,000
8,000
4,000
7,880
14,300
41,500

Part B

SRP COMPANY
Balance Sheet
January 2, 2012
Cash ($32,200 - $11,900 - $11,820)
Inventories
Plant and Equipment
Less Accumulated Depreciation
Land
Patents ($92,000 + $8,000 - $50,000)
Total

8,480
126,600

$322,000
180,700

Restructured Debt Due 2012

Due 2012
Common Stock, $ .10 par value,
580,000 shares outstanding
Paid-in Capital in Excess of Par
Retained Earnings since Reorganization on 1/2/12
Total
Part C 12/31/12
Interest Expense
Interest Payable ($63,000 .06)

141,300
20,800
50,000
$347,180
$ 63,000
52,000
58,000
174,180
- 0 $347,180

3,780
3,780

No interest is accrued on the debt due in 2015 because all cash payments are reductions of the
carrying value of the debt.
1/2/13
Interest Payable
Cash

3,780
3,780

Restructured Debt
Cash ($52,000 .10)

5,200
5,200

10 - 3

Problem 10-4
BRAN COMPANY
Jim Brown, Trustee
Reconciliation and Liquidation Account
June 30, 2012 to December 31, 2012
Assets to be Realized
Receivables (old)
Less: Allowance for
Uncollectibles
Inventory
Plant and Equipment
Less: Accumulated
Depreciation

$
45,000
6,000 $ 39,000

Assets Realized
Receivables (old)

104,000
215,000
70,000

Receivables (new)

85,000

Plant and Equipment

39,000

145,000 Assets Not Realized

Receivables (new)

Assets Acquired
Receivables (new)
Supplementary Charges
Purchases
Operating Expenses
Trustee Expenses
Loss on Sale of
Equipment
Liabilities Liquidated
Accounts Payable (old)
Accounts Payable (new)
Liabilities Not Liquidated
Accounts Payable (old)
Accounts Payable (new)
Net Gain (1)

$ 38,000

Less: Allowance for

Uncollectibles
Inventory
100,000 Plant and Equipment *
Less: Accumulated
Depreciation

$
15,000
2,000

75,000
151,000
55,000

35,000 Supplementary Credits

47,000 Sales
2,000 Gain on Sale of Land
12,000

145,000

110,000
30,000 Liabilities Incurred
Accounts Payable (new)

35,000

35,000
5,000
3,000
$667,000

$667,000

* ($215,000 - $14,000 - $50,000) = $151,000

Balance June 30
Sales
Accounts Receivable (old)

10 - 4

96,000

130,000
11,000

Liabilities to be Liquidated
Accounts Payable (old)

Cash
15,000 Accounts Payable (old)
30,000 Accounts Payable (new)
38,000 Operating Expenses

13,000

110,000
30,000
47,000

Accounts Receivable (new)

Sale of Land and Equipment
Balance 12/31
(1)

85,000 Trustee Expenses

38,000
17,000

Proof of Gain:
Sales
Cost of Sales ($104,000 + $35,000 - $75,000)
Operating Expenses
Trustee Expenses
Bad Debts Expense
Depreciation Expense
Gain on Sale of Land
Loss on Sale of Equipment
Net Gain

10 - 5

$ 130,000
(64,000)
(47,000)
(2,000)
(3,000)
(10,000)
11,000
(12,000)
$ 3,000

2,000

Problem 10-5
Part A

Trustees Books
Cash
Accounts Receivable (old)
Inventory
Property and Equipment
Allowance for Uncollectibles (old)
Accumulated Depreciation
Plum Company in Receivership ($252,750 - $3,750 - $36,825)
To record the receipt of Plum Companys assets.

4,500
15,000
142,650
90,600
3,750
36,825
212,175

Cash
Accounts Receivable (new)
Sales
To record merchandise sales.

78,000
75,000

Cash

75,750

153,000

Accounts Receivable (old)

Accounts Receivable (new)
To record collection of accounts receivable.
Operating Expenses
Trustee Expenses
Cash
To record cash expenses.

11,250
64,500
11,850
3,000
14,850

Bad Debt Expense

Depreciation Expense
Allowance for Uncollectibles (new)
Accumulated Depreciation
To record adjustment for bad debts and depreciation.

2,250
5,250

Allowance for Uncollectibles (old)

Accounts Receivable (old) ($15,000 $11,250)
To write off uncollectible accounts.

3,750

Plum Company in Receivership

Cash
To record payment of old accounts payable.
Cash
Accumulated Depreciation ($36,825 + $5,250)
Loss on Sale of Equipment
Property and Equipment
To record the sale of property and equipment.

10 - 6

2,250
5,250

3,750
143,175
143,175
43,500
42,075
5,025
90,600

Sales
Plum Company in Receivership
Inventory
Operating Expenses
Trustee Expenses
Bad Debt Expense
Depreciation Expense
Loss on Sale of Equipment
To close income statement accounts.

153,000
17,025
142,650
11,850
3,000
2,250
5,250
5,025

Plum Company Books

Allowance for Uncollectibles
Accumulated Depreciation
P. Smith, Trustee
Cash
Accounts Receivable
Inventory
Property and Equipment
To record the transfer of assets to P. Smith.
Accounts Payable
P. Smith, Trustee
To record the payment of accounts payable by P. Smith.
Retained Earnings
P. Smith, Trustee
To record operating effects reported by P. Smith.

10 - 7

3,750
36,825
212,175
4,500
15,000
142,650
90,600
143,175
143,175
17,025
17,025

Part B

PLUM COMPANY IN RECEVERSHIP

Combining Workpaper
For Five Months Ending October 31, 2012
Trial Balance
PLUM
Trustee
Company

Adjustments and
Eliminations
Dr.
Cr.

Combined
Income
Balance
Statement
Sheet

Debits
Cash *
Accounts Receivable (new)
Inventory
Operating Expenses
Trustee Expense
Bad Debt Expense
Depreciation Expense
Cost of Goods Sold
Loss on Sale of Equipment
P Smith, Trustee
Total Debits

43,725
10,500
142,650
11,850
3,000
2,250
5,250

43,725
10,500
(1)

(1)

142,650
11,850
3,000
2,250
5,250
142,650
5,025

142,650

5,025
69,000
$ 224,250 $ 69,000

(2)

69,000
$ 170,025

$ 54,225

Credits
Allowance for Uncollectibles: (New)
Capital Stock
Retained Earnings (Deficit)
Sales
Plum Company-in Receivership
Total Credits
Net Loss

2,250

2,250
135,000
(66,000)

135,000
(66,000)
153,000
69,000
(2)
69,000
$ 224,250 $ 69,000
$211,650

* $4,500 + $78,000 + $75,750 - $14,850 - $143,175 + $43,500

(1) To adjust inventory and set up cost of goods sold.
(2) To eliminate reciprocal accounts.

10 - 8

153,000
$211,650

153,000
17,025
$ 170,025

(17,025)
$ 54,225

Problem 10-6

Assets to be Realized
Accounts Receivable (old)
Less: Allowance for Uncollectibles
Inventory
Plant and Equipment
Less: Accumulated Depreciation

PLUM COMPANY
P. Smith, Trustee
Realization and Liquidation Account
June 1, 2012 to October 31, 2012
$15,000
3,750
90,600
36,825

Assets Acquired
Accounts Receivable (new)
Supplementary Charges
Operating Expenses
Trustee Expense
Loss on Sale of Equipment *

Assets Realized
Accounts Receivable (old)
$ 11,250 Accounts Receivable (new)
142,650 Property and Equipment
Less: Accumulated Depreciation
53,775
Assets Not Realized
Accounts Receivable (new)
Less: Allowance for Uncollectibles
75,000
Supplementary Credits
11,850 Sales
3,000
5,025 Liabilities to be Liquidated
Accounts Payable

Liabilities Liquidated
Accounts Payable

143,175 Net Loss

$ 445,725

Opening Amount
Sales
Accounts Receivable
Sale of Land and Equipment
Balance 10/31

10 - 9

$90,600
42,075

48,525

10,500
2,250

8,250

153,000
143,175
17,025
$ 445,725

* ($90,600 - $42,075) - $43,500 = $5,025

Cash
4,500 Operating Expenses
78,000 Trustee Expense
75,750 Accounts Payable
43,500
43,725

$ 11,250
64,500

11,850
3,000
143,175

10 - 10