P18-7 Installment liquidation Lop filed for relief under Chapter 11 of the bankruptcy act on January 2, 2016. A summary of Lop’s assets and equities on this date, and at June 30, 2016, follows. Estimated fair values of Lop’s assets at June 30 are also shown.

January 2, 2016 June 30, 2016 Per Books Per Books Estimated Fair Value Assets Cash $200 $6,700 $6,700 Trade receivables—net 800 1,000 1,000 Inventories 2,000 1,600 2,000 Prepaid items 500 — —

Land 1,000 1,000 2,000 Buildings—net 3,000 2,900 1,500 Equipment—net 2,000 1,800 1,800 Patent 4,500 4,000 0

$14,000 $19,000 $15,000 Equities Accounts payable $1,000 $3,000 Wages payable 500 1,000 Bank note payable (includes $500 interest)

5,000 Long-term note payable (secured with equipment)

6,000 Prepetition liabilities allowed 12,500 Common stock 7,000 7,000 Deficit (5,500) (4,500)

$14,000 $19,000 The parties in interest agree to a reorganization plan on July 1, 2016, and a hearing to confirm that the plan is fair and equitable is scheduled for July 8. Under the reorganization plan, the reorganization value is set at $16,000, and the debt and equity holders will receive value as follows:

To Receive Cash Consideration To Receive Noncash Consideration Postpetition Claims Accounts payable (in full) $3,000 Wages payable (in full) 1,000 Prepetition Claims Accounts payable (80%) 800 Wages payable (80%) 400 Bank note payable and interest (80%)

$2,000 2,000 note payable common stock Long-term note payable (80%) 1,800 note payable 3,000 common stock Common stockholders* 2,000 common stock

$5,200 $10,800

*Reorganization value over consideration allocated to creditors.

The reorganization plan is confirmed on July 8, 2016, under the new name of Hip. There are no asset or liability changes between July 1 and July 8.

REQuIRED 1. Is the reorganization of Lop eligible for fresh-start accounting? Show calculations.