Prepare journal entries for Becket to record the transactions as put forth in this reorganization plan.

Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2010, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act:

BECKET CORPORATION
Balance Sheet
November 10, 2010

Assets

Cash

$12,000

Accounts receivable (net)

61,000

Investments

26,000

Inventory (net realizable value is expected to approximate 80% of cost)

80,000

Land

57,000

Buildings (net)

248,000

Equipment (net)

117,000

Total assets

$601,000

Liabilities and Equities

Accounts payable

$129,000

Notes payable—current (secured by equipment)

220,000

Notes payable—(due in 2013) (secured by land and buildings)

325,000

Common stock ($10 par value)

60,000

Retained earnings (deficit)

133,000

Total liabilities and equities

$601,000

The company presented the following proposal:

• The reorganization value of the company’s assets just prior to issuing additional shares below, selling the company’s investment, and conveying title to the land is set at $650,000.

• Accounts receivable of $20,000 are written off as uncollectible. Investments are worth $40,000, land is worth $80,000, the buildings are worth $300,000, and the equipment is worth $86,000.

• An outside investor has been found to buy 7,000 shares of common stock at $11 per share.

• The company’s investments are to be sold for $40,000 in cash with the proceeds going to the holders of the current note payable. The remainder of these short-term notes will be converted into $130,000 of notes due in 2014 and paying 10 percent annual cash interest.

• All accounts payable will be exchanged for $40,000 in notes payable due in 2011 that pay 8 percent annual interest.

• Title to land costing $20,000 but worth $50,000 will be transferred to the holders of the note payable due in 2013. In addition, these creditors will receive $180,000 in notes payable (paying 10 percent annual interest) coming due in 2017. These creditors also are issued 3,000 shares of previously unissued common stock.

Prepare journal entries for Becket to record the transactions as put forth in this reorganization plan.

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