Survivo Company's plan of reorganization under Chapter 11 of the bankruptcy statutes calls for a cash payment of $2,000,000 and the issuance of $3,000,000 of 12% notes payable to its unsecured creditors on a pro rata basis. These unsecured creditors are composed of vendors (owed $1,000,000) and a bank (owed $5,500,000 principal and $300,000 interest). (The 12% interest rate on the notes is considered reasonable under the circumstances.) The notes are to be paid in full in four years.
Required:
Prepare the journal entry related to this settlement.

Question

Quizplus · Accepted Answer

The Answer of Survivo Company's plan of reorganization under Chapter 11 of the bankruptcy statutes calls for a cash payment of $2,000,000 and the issuance of $3,000,000 of 12% notes payable to its unsecured creditors on a pro rata basis. These unsecured creditors are composed of vendors (owed $1,000,000) and a bank (owed $5,500,000 principal and $300,000 interest). (The 12% interest rate on the notes is considered reasonable under the circumstances.) The notes are to be paid in full in four years.
Required:
Prepare the journal entry related to this settlement.

Survivo Company's Plan of Reorganization Under Chapter 11 of the Bankruptcy