Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2020, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act:
The company has presented the following proposal: ∙ The reorganization value of the company’s assets prior to issuing additional shares mentioned later in the proposal, selling the company’s investment, and conveying title to the land is set at $650,000 based on discounted future cash flows. ∙ 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 2024 that pay 10 percent annual cash interest. ∙ All accounts payable will be exchanged for $40,000 in notes payable due in 2021 that pay 8 percent annual cash interest. ∙ Title to land costing $20,000 but worth $50,000 will be transferred to the holders of the note payable due in 2023. In addition, these creditors will receive $180,000 in notes payable (paying 10 percent annual interest) coming due in 2027. These creditors also are issued 3,000 shares of previously unissued common stock. Becket retains the remainder of its land. Prepare journal entries for Becket to record the transactions as put forth in this reorganization plan.