During the recent recession, Polydorous Incorporated accumulated a deficit in retained earnings. Although still operating at a loss, the company posted better results during $20$X$1.$ 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 $ $161,000$

Interest Payable $23,200$

Notes Payable, $10\%,$ unsecured $340,100$

Preferred Stock $100,700$

Common Stock, $$5$ par $150,600$

Retained Earnings $($deficit$)(79,200)$

Total $ $696,400$

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:

The prepetition accounts payable will be restructured according to the following: $($a$)$ $$40,900$ will be paid in cash, $($b$)$ $$21,100$ will be eliminated, and $($c$)$ the remaining $$99,000$ will be exchanged for a four$-$year, secured note payable paying $11$ percent interest.

The interest payable will be restructured as follows: elimination of $$11,600$ of the interest and payment of the remaining $$11,600$ in cash.

The $10$ percent, unsecured notes payable will be restructured as follows: $($a$)$ $$61,600$ of them will be eliminated; $($b$)$ $$11,600$ of them will be paid in cash; $($c$)$ $$241,100$ of them will be exchanged for a $4-$year, $11$ percent secured note; and $($d$)$ the remaining $$25,800$ will be exchanged for $2,580$ shares of newly issued common stock having a par value of $$10.$

The preferred shareholders will exchange their stock for $5,100$ shares of newly issued $$10$ par common stock.

The common shareholders will exchange their stock for $2,180$ shares of newly issued $$10$ par common stock.

After extensive analysis, the company$$s reorganization value is determined to be $$514,300$ prior to any payments of cash required by the reorganization plan. An additional $$11,500$ 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$)$ $ $11,500$

Notes payable, $11\%,$ secured $340,100$

Common stock $($$$10$ par$)98,600$

Postreorganization capital structure $ $450,200$

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 $ $30,400$ $ $30,400$

Accounts receivable $($net$)141,600111,700$

Inventory $26,50018,300$

Property, plant and equipment $($net$)445,300262,100$

Total $ $643,800$ $ $422,500$

Required:Complete this question by entering your answers in the tabs below.

Required D

Prepare an analysis showing whether the company qualifies for fresh start accounting as it emerges from the reorganization.

Prepare an analysis showing whether the company qualifies for fresh start accounting as it emerges from the reorganization.