During the recent recession, Polydorous Inc. accumulated a deficit in retained earnings. Although still operating at a loss, the company posted better results during 20X1. Polydorous is having trouble paying suppliers on time and is paying interest when it is due. The company files for protection under Chapter 11 of the Bankruptcy Code and has the following liabilities and stockholders equity accounts at the time the petition is filed:

Accounts Payable		$	160,200
Interest Payable			24,000
Notes Payable, 10%, unsecured			340,500
Preferred Stock			100,800
Common Stock, $5 par			151,300
Retained Earnings (deficit)			(76,900	)
Total		$	699,900

A plan of reorganization is filed with the court, which approves it after review and obtaining creditor and investor votes. The plan of reorganization includes the following actions:

1. The prepetition accounts payable will be restructured according to the following: (a) $41,700 will be paid in cash, (b) $20,300 will be eliminated, and (c) the remaining $98,200 will be exchanged for a six-year, secured note payable paying 12 percent interest.
2. The interest payable will be restructured as follows: elimination of $12,000 of the interest and payment of the remaining $12,000 in cash.
3. The 10 percent, unsecured notes payable will be restructured as follows: (a) $60,300 of them will be eliminated, (b) $12,000 of them will be paid in cash, (c) $242,300 of them will be exchanged for a 6-year, 12 percent secured note, and (d) the remaining $25,900 will be exchanged for 2,590 shares of newly issued common stock having a par value of $10.
4. The preferred shareholders will exchange their stock for 5,170 shares of newly issued $10 par common stock.
5. The common shareholders will exchange their stock for 2,130 shares of newly issued $10 par common stock.

After extensive analysis, the companys reorganization value is determined to be $515,400 prior to any payments of cash required by the reorganization plan. An additional $10,300 in current liabilities have been incurred since the petition was filed. After the reorganization is completed, the capital structure of the company will be as follows:

Current liabilities (postpetition)	$	10,300
Notes payable, 12%, secured		340,500
Common stock ($10 par)		98,900
Postreorganization capital structure	$	449,700

An evaluation of the assets fair values was made after the company completed its reorganization, immediately prior to the point the company emerged from the proceedings. The following information is available:

	Book Value				Fair Value
Cash	$	31,900			$	31,900
Accounts receivable (net)		140,200				111,000
Inventory		26,200				18,300
Property, plant & equipment (net)		446,200				263,400
Total	$	644,500			$	424,600

Required: a. Prepare a plan of reorganization recovery analysis for the liability and stockholders equity accounts of Polydorous Inc. on the day the plan of reorganization is approved. (Hint: The liabilities on the plans approval day are $535,000, which is $524,700 from prepetition payables plus $10,300 in additional accounts payable incurred postpetition.)

b. Prepare an analysis showing whether the company qualifies for fresh start accounting as it emerges from the reorganization based on the reorganization value of its assets and postpetition liabilities & allowed claims.

c. Prepare journal entries for execution of the plan of reorganization with its general restructuring of debt and capital.

d. Prepare the balance sheet for the company on completion of the plan of reorganization. For retained earnings enter the net change in Fresh Start. (Amounts to be debited should be entered as positive and amounts to be credited should be entered as negative.)

Post-petition liabilities Claims/Interest: Accounts payable Interest payable Notes payable, 10% Total Preferred shareholders Common shareholders Retained earnings deficit Total Pre- Confirmation POLYDOROUS CORPORATION Plan of Reorganization Recovery Analysis Recovery Surviving Debt Elimination of Debt and Equity Cash 12% Secured Common Stock Notes % Value Total Recovery % SA First condition: Post-petition liabilities Liabilities deferred pursuant to Chapter 11 proceedings Total post-petition liabilities and allowed claims Reorganization value Excess of liabilities over reorganization value A Record the debt discharge. B Record the exchange of stock for stock. C Record the fresh start accounting and the elimination of the deficit. Assets: Cash Accounts receivable (net) Inventory Total Property, plant and equipment (net) Reorganization value in excess of amounts allocable to identifiable assets Total assets Liabilities: Liabilities not subject to compromise: Current liabilities Liabilities subject to compromise Notes Payable, 12%, secured Total Liabilities Shareholders' equity: Preferred ock Common stock (old) Common stock (new) Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Debt Pre- confirmation Discharge Exchange of Stock Fresh Start Reorganized Balance Sheet