On January 2, 20X2, the Hobbes Company files a petition for relief under Chapter 11 of the

Question:

On January 2, 20X2, the Hobbes Company files a petition for relief under Chapter 11 of the Bankruptcy Act. The company had disastrous operating performance during the recent recession and needs time to reestablish profitable operations. The trial balance on January 2, 20X2, is as follows:

image text in transcribed

The following information applies to the 20X2 fiscal year, ending December 31, 20X2. The company is in reorganization proceedings for the entire year, and the plan of reorganization has not been approved as of December 31, 20X2. The debtor remained in possession of the company during the year.
\section*{Income Data for 20X2}
1. Sales revenue of $\$ 246,000$ is generated during the year.
2. Cost of goods sold is $\$ 170,000$ as a result of cost reduction programs installed during the year.
3. Selling, operating. and administrative expenses are $\$ 50,000$ for the year.
4. Interest expense is $\$ 4,000$. Contractual interest would have been $\$ 51,000$ for the year.
5. Reorganization items include $\$ 15,000$ in fees paid to professionals, and $\$ 3,000$ of interest earned on cash accumulated as a result of the Chapter 11 proceedings.
6. The income tax of $\$ 5.000$ on operating income was paid during the year.
7. Discontinued operations included a loss on operations, net of tax, of $\$ 16,000$, and a gain on the sale of assets, net of $\operatorname{tax}$, of $\$ 9,000$. The sale of the assets was administered by the court under the Chapter 11 proceedings.
\section*{Cash Flow Data for 20X2}
1. A total of $\$ 264,000$ is received from customers. This includes $\$ 18.000$ received on the accounts receivable that were outstanding prior to the filing of the petition.
2. A total of $\$ 206,000$ is paid to suppliers, employees, and others for operations.
3. The current interest expense of $\$ 4,000$ is paid during the year. This interest is on postpetition debt.
4. Professional fees of $\$ 15,000$ are paid, and interest on cash accumulations of $\$ 3,000$ is received.
5. Net cash used by discontinued operations, excluding the sale of assets, is $\$ 3,000$.
6. The proceeds from the sale of the discontinued assets is $\$ 18,000$. This sale was administered by the bankruptcy court.
7. The company borrowed $\$ 10,000$ in short-term debt as part of a financing plan administered by the court.
8. The court authorized a payment of $\$ 10,000$ on the bonds payable. The ending cash balance of $\$ 72,000$ represents an increase of $\$ 57.000$ during the year.

\section*{Other Data for 20X2}
1. Through careful working-capital management, the ending inventory is reduced to $\$ 88,000$. Continued reduction is expected in $20 \times 3$.
2. The property, plant, and equipment, net of accumulated depreciation, at the end of $20 \times 2$ was $\$ 460,000$.
3. In addition to the $\$ 10,000$ short-term borrowings that are part of the court-approved financing plan. the company has postpetition accounts payable of $\$ 7.000$.
\section*{Required}

a. Prepare the income statement for the company for the year ending December $31,20 \times 2$.

b. Prepare the statement of cash flows for the company for the year ending December 31, 20X2.

c. Prepare the balance sheet for the company as of December 31, $20 \times 2$.

Fantastic news! We've Found the answer you've been seeking!