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 Interest Payable Notes Payable, 12%, unsecured Preferred Stock Common Stock, $5 par Retained Earnings (deficit) Total $161.409 23,402 341, 500 181. eee 150, 700 (81, eee) $697,820 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) $41,300 will be paid in cash, (b) $21.400 will be eliminated, and (c) the remaining $98,700 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 $11,700 of the interest and payment of the remaining $11,700 in cash. 3. The 10 percent, unsecured notes payable will be restructured as follows: (a) $61,200 of them will be eliminated. (b) $11,700 of them will be paid in cash. (c) $242.800 of them will be exchanged for a 6-year, 12 percent secured note, and (d) the remaining $25,800 will be exchanged for 2.580 shares of newly issued common stock having a par value of $10. 4. The preferred shareholders will exchange their stock for 5.130 shares of newly issued $10 par common stock. 5. The common shareholders will exchange their stock for 2.070 shares of newly issued $10 par common stock. After extensive analysis, the company's reorganization value is determined to be $514.900 prior to any payments of cash required by the reorganization plan. An additional $10.900 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) Notes payable, 12%, secured Common stock ($10 par) Postreorganization capital structure $ 1e gee 341,500 97.809 $450,209 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: Cash Accounts receivable (net) Inventory Property, plant & equipment (net) Total Book Value $30, see 140,300 26.709 445,709 $643,200 Fair Value $ 30, 508 111. 109 19.689 262,900 $424,100 Requlred: 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 plan's approval day are $537,200, which is $526,300 from prepetition payables plus $10.900 in additional accounts payable incurred postpetition.) (Round your percentage answers to nearest whole percentage. Negative amounts should be Indicated by a minus slgn.) POLYDOROUS CORPORATION Plan of Reorganization Recovery Analysis Recovery Elimination 12% Secured Common Stock Total Recovery Pre- Confirmation of Debt and Equity Surviving Debt Cash Notes Value Post-petition liabilities Claims/Interest: Accounts payable Interest payable Notes payable, 10% Total Preferred shareholders Common shareholders Retained earnings deficit Total 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. 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 c. Prepare journal entries for execution of the plan of reorganization with its general restructuring of debt and capital. (If no entry Is required for a transaction/event, select "No journal entry required" In the first account field.) View transaction list Journal entry worksheet Record the debt discharge. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal 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 positlve and amounts to be credited should be entered as negative.) Adjustments to Record Confirmation of Plan Company's Pre- confirmation Debt Discharge Exchange of Stock Fresh Start Reorganized Balance Sheet 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 stock Common stock (old) Common stock (new) Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 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 Interest Payable Notes Payable, 12%, unsecured Preferred Stock Common Stock, $5 par Retained Earnings (deficit) Total $161.409 23,402 341, 500 181. eee 150, 700 (81, eee) $697,820 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) $41,300 will be paid in cash, (b) $21.400 will be eliminated, and (c) the remaining $98,700 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 $11,700 of the interest and payment of the remaining $11,700 in cash. 3. The 10 percent, unsecured notes payable will be restructured as follows: (a) $61,200 of them will be eliminated. (b) $11,700 of them will be paid in cash. (c) $242.800 of them will be exchanged for a 6-year, 12 percent secured note, and (d) the remaining $25,800 will be exchanged for 2.580 shares of newly issued common stock having a par value of $10. 4. The preferred shareholders will exchange their stock for 5.130 shares of newly issued $10 par common stock. 5. The common shareholders will exchange their stock for 2.070 shares of newly issued $10 par common stock. After extensive analysis, the company's reorganization value is determined to be $514.900 prior to any payments of cash required by the reorganization plan. An additional $10.900 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) Notes payable, 12%, secured Common stock ($10 par) Postreorganization capital structure $ 1e gee 341,500 97.809 $450,209 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: Cash Accounts receivable (net) Inventory Property, plant & equipment (net) Total Book Value $30, see 140,300 26.709 445,709 $643,200 Fair Value $ 30, 508 111. 109 19.689 262,900 $424,100 Requlred: 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 plan's approval day are $537,200, which is $526,300 from prepetition payables plus $10.900 in additional accounts payable incurred postpetition.) (Round your percentage answers to nearest whole percentage. Negative amounts should be Indicated by a minus slgn.) POLYDOROUS CORPORATION Plan of Reorganization Recovery Analysis Recovery Elimination 12% Secured Common Stock Total Recovery Pre- Confirmation of Debt and Equity Surviving Debt Cash Notes Value Post-petition liabilities Claims/Interest: Accounts payable Interest payable Notes payable, 10% Total Preferred shareholders Common shareholders Retained earnings deficit Total 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. 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 c. Prepare journal entries for execution of the plan of reorganization with its general restructuring of debt and capital. (If no entry Is required for a transaction/event, select "No journal entry required" In the first account field.) View transaction list Journal entry worksheet Record the debt discharge. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal 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 positlve and amounts to be credited should be entered as negative.) Adjustments to Record Confirmation of Plan Company's Pre- confirmation Debt Discharge Exchange of Stock Fresh Start Reorganized Balance Sheet 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 stock Common stock (old) Common stock (new) Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity