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Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has been allowed to reorganize their debt structure with a consolidated new deferral bond issue with more favorable terms. The new issue will be a 38-year, 9% coupon rate bond with semiannual coupons. However, under the bond indenture, the company is relieved of making interest payments (deferred interest) for the first 7 years. The reorganization calls for the deferred interest to be paid in a single payment at maturity. Investors are demanding a yield to maturity of 9%. What is the value of a new $1,000 par
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- As part of a reorganization plan, a bankruptcy court has permitted a new indenture on an outstandingbond issue to be put into effect for Cardinal Corporation, which recently filed for bankruptcy. It isknown that the issue has $1,000 par value per bond, 15 years to maturity, and a coupon rate of 5percent paid semi-annually. The reorganization plan allows the following arrangement: For the firstfive years, there will be no coupon paid (that is, coupon = $0). After five years, regular couponpayments will resume. At maturity, the par value plus the sum of all coupon payments that were notpaid during the first seven years must be paid. However, no additional interest will be paid on thedeferred coupon payments. If the required rate of return is 4 percent (APR), calculate the current pricethe Cardianl bonds would sell for in the market.Deere, Inc. will be liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets will be sold for $4,000,000 and current assets will be sold for $3,000,000. All fixed assets are pledged as collateral for all mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $750,000. Before Before Default Balance Sheet Default Current Assets 5,000,000 Accounts payable 1,000,000 Net fixed assets 7,000,000 Accrued taxes 50,000 Accrued wages 85,000 Notes payable 2,000,000 Total current liabilities 3,135,000 First-mortgage bonds 2,000,000 Second-mortgage bonds 3,000,000 Subordinated debentures 5,000,000 Common stock 300,000 Retained earnings (1,435,000) Total assets 12,000,000 Total claims 12,000,000 a. How much will SHs receive? b. How much will mortgage bondholders receive? c. How much will…Rothschild Chair Company, was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2011, and was due December 31, 2024. Annual interest was paid on December 31, 2019. At January 1, 2021, Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuting of the terms of the debt agreement. REQUIRED: Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below: 1.-First Linconl Bank agreed to settle the debt in exchange for land having a fair value of $16 million but carried on Rothschild Chair company's book at $13 million 2.-First Lincoln Bank agreed to a) forgive the interest accrued from last year, b) reduce the remaining four interest payments to $1 million each, and c) reduce the principal to $15 million
- Howard Manufacturing has two debts outstanding with a creditor. Howard is experiencing financial difficulties, and the creditor has granted a concession. Therefore, accounting for the debt in question qualifies as a troubled debt restructuring. At the date of the restructuring, July 1 of the current year, the two debts and the proposed restructuring are as follows:Debt A—This debt has a carrying value of $1,200,000 plus accrued interest of $24,000 at the restructuring date. The terms of restructuring call for Howard to transfer to the creditor a vacant parcel of land with a fair market value of $600,000 and a book value of $425,000. In addition, Howard will pay $70,000 to the creditor at the end of each of the next eight calendar quarters. Debt B—This 6% debt has a carrying value of $2,100,000 and accrued interest of $52,500.The terms of the restructuring call for Howard to issue nonvoting common stock with a fair value of $500,000 to the creditor. In addition, $193,553.02 will be paid…In a prepackaged bankruptcy, the firm:• must agree with the bankruptcy plan submitted to it by its creditors.• prearranges an auction that will liquidate the firm within one month of the legal filing.• exchanges all debt securities with equity securities.• pays all its secured creditors and exchanges the unsecured debt securitieswith equity.• reaches an agreement with its creditors prior to filing the bankruptcy petition.Rothschild Chair Company, Incorporated, was indebted to First Lincoln Bank under a $40 million, 10% unsecured note. The note was signed January 1, 2014, and was due December 31, 2027. Annual interest was last paid on December 31, 2022. At January 1, 2024. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement Note: Use appropriate factor(s) from the tables provided. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below: 1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $36 million but carried on Rothschild Chair Company's books at $33 million. 2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b)…
- Rothschild Chair Company, Incorporated, was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2014, and was due December 31, 2027. Annual interest was last paid on December 31, 2022. At January 1, 2024, Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. Note: Use appropriate factor(s) from the tables provided. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below: 1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $16 million but carried on Rothschild Chair Company's books at $13 million. 2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b)…Sunland Corporation has an investment in corporate bonds classified as available-for-sale at December 31, 2025. These bonds have a par value of $466,000, an amortized cost of $466,000, and a fair value of $388,000. The company believes that impairment accounting is now appropriate for these bonds because the expected credit loss on the bonds is $93,000. (a) Prepare the journal entry to recognize the impairment. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit CreditA Corporation was forced into bankruptcy and is in the process of liquidatingassets and paying claims. The recovery percentage is estimated to be at 20%.The Corporation holds a notes receivable from a customer amounting to P100,000 collateralized by an asset with a book value of P60,000 and a liquidation value of P50,000. The amount to be realized by on this note is:
- Ma Mannheim Corporation is ready to emerge from Chapter 11 bankruptcy under a reorganization plan accepted by all parties. Mannheim's balance sheet shows: Various assets $2,000,000 Prepetition liabilities, fully secured $400,000 Prepetition liabilities subject to compromise 1,360,000 Postpetition liabilities 820,000 Common stock 200,000 Retained deficit (780,000) TOTAL $2,000,000 TOTAL $2,000,000 There are no excess assets. The present value of future cash flows from the reorganized company's operating assets is $1,900,000 The creditors represented by the prepetition liabilities subject to compromise agree to take $580,000 in 7 percent notes payable plus 70 percent of the common stock as settlement. The old shareholders will have 30 percent of the common stock. After reorganization, Mannheim's retained earnings balance is Select one: a. $150,000 b. $(70,000) c. $500,000 d. $0.Hagar Corporation has municipal bonds classified as a held-to-maturity at December 31, 2020. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000. The company believes that impairment accounting is now appropriate for these bonds. Instructions a. Prepare the journal entry to recognize the impairment. b. What is the new cost basis of the municipal bonds? Given that the maturity value of the bonds is $800,000, should Hagar Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds? c. At December 31, 2021, the fair value of the municipal bonds is $760,000. Prepare the entry (if any) to record this information.Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: 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 company’s assets be reported? c. If a Goodwill account is recognized in a reorganization, where should it be reported? What happens to this balance?