On January 2, 20X2, Hobbes Company fies a petition for reief under Chapter 11 of the B ankruptcy Code. Hobbes had disastrous operating performance during the recent recession and needs time to reestablish profitable operations. The trial balance on January 2, 20X2, follows Debit $ 16.000 65.500 103,700 620,400 Credit Cash Accounts Receivable (net) Inventory Property, Plant and Equipment Accumulated Depreciation Accounts Payable Notes Payable, 10 % Bonds Payable 12 % Interest Payable Preferred Stock Common Stock, $1 par Additional Pald-in Capital Retained Eanings (deficit) $141,700 139 400 168.100 250,900 48 200 50.200 50,200 76.200 119,300 Total $924.900 $924 900 The folowing information applies to the 20X2 fiscal year ending December 31 20X2 Hobbes is in reorganization proceedings for the entire year, and the plan of reorganization has not been approved as of December 31, 20x2. The deblor retained possession of the company during the year Income Data for 20X2 1. Sales revenue of $247,500 is generated during the year 2. Cost of goods sold is $168,100 as a result of cost reduction programs implemented during the year 3. Selling, operating and administrative expenses are $51.300 for the year 4. Interest expense is $4.200. Contractual interest would have been $52.400 for the year 5. Reorganization items include $16,500 in fees paid to professionals and $4,200 of interest eamed on cash accumulated as a result of the Chapter 11 proceedings 6 The income tax of $3,200 on operating income was paid during the year 7. Discontinued operations included a $17.900 loss on operations, net of tax and a $8.200 gain on the sale of assets, net of tax The bankruptcy court administered the sale of the assets under the Chapter 11 proceedings Cash Flow Data for 20X2 1 A total of $266.900 is received from customers. This includes $19,400 recuived on thee accounts receivable that were outstanding prior to filing the petition 2. A total of S206.900 is paid to suppliers, employees, and others for operations 3 The curent interest uxpense of 54.200 on postpetition dobt is paid during the year 4 Professional fees of $16,500 are paid, and interest on cash accumulations of $4,200 is received 5 Net cash used by discontinued operations, exckading the sale of assets, is $4,200 6 The proceeds from the sale of the discontinued assets is $19.400 The bankruptcy court administored this sale 7 Hobbes borowed $11.200 in short-term debt as part of a financieg plan administered by the court 8. The court authorized a payment of $11,200 on the bonds payable. The ending cash balance of $74.700 represents an increase of $58,700 during the year Other Data for 20X2 1. Careful working capital management reduced the ending inventory to $88,300. Continued reduction is expected in 20X3. 2 The property, plant, and equipment, net of accumulated depreciation, at the end of 20X2 totaled $463 200 3. In addition to the $11,200 short-term borrowings that are part of the court-approved financing plan. Hobbes has postpetition accounts payable of $9,700 Required: a. Prepare the income statement for Hobbes for the year ending December 31, 20X2 HOBBES COMPANY (Debtor-in-Possession) Income Statement For the Year December 31, 20X2 Revenue Sales Cost and Expenses Seling, operating, and administrative Interest 0 Eanings before reorganization items and income taxes Reorganization items Interest earned on accumulated cash resulting from chapter 11 proceeding Total reorganization items 0 Income before income tax and discontinued operations Income tax Income before discontinued operations 0 Discontinued operations: Not income (loss) from discontinued operations b. Prepare the statement of cash flows for the company for the year ending December 31, 20X2 (Amounts to be deducted should be indicated by minus sign.) HOBBES COMPANY (Debtor-in-Possession) Statement of Cash Flows For the Year December 31, 20X2 Cash Flows from Operating Activities: Cash received from customers Cash paid to suppliers and employees Interest paid S Operating Cash Flows from Reorganization Activities Interest received on cash accumulated because of chapter 11 proceeding Operating Cash Flows from Discontinued Operations: Cash Flows Provided by Investing Activities Proceeds from sale of assets due to chapter 11 proceeding Net borrowings under short-term financing plan Principal payments on pre-petition debt authorized by court (bonds payable) Net cash provided by investing activities C Cash at January 1, 20X2 Cash at December 31, 20X2 0 Prepare the balance sheet for the company as of December 31, 20X2. (Amounts to be deducted C. should be indicated by minus sign.) HOBBES COMPANY (Debtor-in-Possession) Balance Sheet December 31, 20X2 Assets Total current assets S Total assets Liabilities Liabilities not subject to compromise: Current liabilities (post-petition): 0 Total liabilities not subject to compromise Liabilities subject to compromise (pre-petition) Total liabilities subject to compromise 0 Total liabilities Shareholders' Equity 0 Total shareholders' equity Total liabilities and shareholders' equity