Stanton corporation filed for bankruptcy and now is emerging as a reorganized entity on December 31, 2020. The company will own the following assets on this date:

Asset	Book Value	Fair Value
Accounts receivable	$10,000	$12,000
Inventory	145,000	113,000
Land & buildings	200,000	228,000
Machinery	145,000	122,000
Patents	80,000	105,000

The company has a reorganization value of $700,000.

Stanton has 50,000 shares of $10 par value common stock outstanding and a deficit balance of $650,000 in retained earnings. The owners will distribute 30,000 shares of the 50,000 shares as part of the reorganization plan.

The companys liabilities will be settled as follows:

• Accounts payable of $200,000 (existing on the date the order for relief was granted) to be settled with an 8%, two-year note for $40,000
• Accounts payable of $50,000 (incurred since the order for relief was granted) to be paid in the regular course of business.
• Note payable of $100,000 to First Bank to be settled with a 8%, five year note for $25,000 and 15,000 shares of the stock to be distributed by the owners
• Note payable of $400,000 to be settled with a 7%, eight year note for $80,000 and 15,000 shares of the stock to be distributed by the owners.

A. How does Stanton company know that fresh start accounting must be utilized?

B. Prepare a balance sheet for Stanton Corporation on emergence from reorganization.