Estimated Estimated Unsecured Amount

Secured
Amount Without
Book Value Liabilities and Owners' Equity With Priority Priority
Fully secured creditors:
$ 3,600 Accrued interest $ 3,600
69,000 Note payable 69,000
Total $ 72,600

Unsecured creditors with priority:

24,900 Wages payable $24,900
2,000 Administration fees 2,000

Unsecured creditors without priority:

2,400 Accrued interest $ 2,400
18,000 Cash overdraft 18,000
36,000 Notes payable 36,000
126,000 Accounts payable 126,000
$281,900 Totals $72,600 $26,900 $182,400
46,000 Owners' equity--see Note A
$327,900

Note A: Includes the effect of the $2,000 professional fee.

b: Divided to Class 7 unsecured creditors: $124,000 ÷ $182,400 = 68%.

DIF: D OBJ: 21-4

11. Wayne Corporation, a manufacturer of farm machinery, had poor financial results last year because of
a drought. Back orders indicate complete recovery this year. To eliminate a deficit that increased when
the books were closed at the end of last year, the corporation has received stockholders' and state
approval to conduct a quasi-reorganization on January 2.

Required:
Prepare journal entries as of January 2 to record the quasi-reorganization and the stockholders' equity
section of its balance sheet immediately thereafter. The following data are pertinent:

a. Inventory at year-end is shown at FIFO cost of $280,000. Inventory is to be valued at

replacement cost of $250,000.

b. Property, plant, and equipment are shown in the records at $4,000,000, net of accumulated
depreciation. They are to be written down to fair value of $3,100,000.

c. Stockholders' equity consists of:

Common stock ($10 par) 400,000 shares issued

and outstanding $4,000,000
Additional paid-in capital 100,000
Retained earnings (deficit). (2,600,000)
Total stockholders' equity $1,500,000

Par value of stock is to be reduced from $10 to $1 per share. Paid-in capital related to the
former stock is to be canceled.

d. The deficit is to be eliminated.

21-1
ANS:

21-2