On February 1, 2017, Hillary Company filed a petition for reorganization under the bankruptcy statutes. The court approved the plan on September 1, 2017, including the following provisions:
1. Accrued expenses of $21,930, representing priority items, are to be paid in full.
2. Hillary Company is to exchange accounts receivable in the face amount of $138,000 and an allowance for uncollectible accounts of $29,200 for the full settlement of $198,600 owed on open account to one of its major unsecured creditors. The estimated fair value of the receivables is $104,000.
3. Unsecured creditors of open accounts amounting to $91,600 and paid 40 cents on the dollar in full settlement.
4. Hillary Company's only other major unsecured creditor agreed to a five-year extension of the $500,000 principal owed him on a 10% note payable. Accrued interest on the note on September 1, 2017, amounts to $45,000, one-third of which is to be paid in cash and the remainder canceled. In addition, no interest is to be charged during the remaining five years to maturity of the note.
Required:
Prepare journal entries on the books of Hillary Company to give effect to the preceding provisions.

Question

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The Answer of On February 1, 2017, Hillary Company filed a petition for reorganization under the bankruptcy statutes. The court approved the plan on September 1, 2017, including the following provisions:
1. Accrued expenses of $21,930, representing priority items, are to be paid in full.
2. Hillary Company is to exchange accounts receivable in the face amount of $138,000 and an allowance for uncollectible accounts of $29,200 for the full settlement of $198,600 owed on open account to one of its major unsecured creditors. The estimated fair value of the receivables is $104,000.
3. Unsecured creditors of open accounts amounting to $91,600 and paid 40 cents on the dollar in full settlement.
4. Hillary Company's only other major unsecured creditor agreed to a five-year extension of the $500,000 principal owed him on a 10% note payable. Accrued interest on the note on September 1, 2017, amounts to $45,000, one-third of which is to be paid in cash and the remainder canceled. In addition, no interest is to be charged during the remaining five years to maturity of the note.
Required:
Prepare journal entries on the books of Hillary Company to give effect to the preceding provisions.

On February 1, 2017, Hillary Company Filed a Petition for Reorganization