Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1, 2014. A summary of their financial status is shown below on June 30, 2014, at the date of the approved reorganization, along with the fair value of their assets. Per Books Fair Value Cash $ 134,000 $ 134,000 A/R - net 20,000 20,000 Inventory 32,000 40,000 Plant Assets - net 114,000 106,000 Patent 80,000 0 $ 380,000 A/P $ 60,000 Wages Payable 20,000 Prepetition liab. 250,000 Common Stock 140,000 Deficit (90,000) $ 380,000 Under the reorganization plan, the reorganization value has been set at $320,000. Prepetition liabilities include $30,000 of trade Accounts Payable and a $220,000 Note Payable to Bigg Bank. The reorganization plan calls for the Prepetition accounts payable to be paid at 80% at a later date, and the Note Payable for $220,000 to be replaced by a Note Payable for $76,000 and the issuance of common stock of the new entity for $100,000. The former stockholders will receive $40,000 in common stock of the new entity, Hilfmir, in exchange for their shares. Show the calculations to determine if Hilfmir is eligible for fresh-start accounting, and prepare a fresh-start balance sheet for the new entity, Hilfmir, as of July 1, 2014.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hilfmir Corporation filed for Chapter 11 bankruptcy on January 1, 2014. A summary of their financial status is shown below on June 30, 2014, at the date of the approved reorganization, along with the fair value of their assets.

                                                     Per Books         Fair Value
Cash                                              $ 134,000         $ 134,000
A/R - net                                            20,000             20,000
Inventory                                            32,000             40,000
Plant Assets - net                             114,000            106,000
Patent                                                80,000                     0
                                                     $ 380,000

A/P                                                $   60,000
Wages Payable                                  20,000
Prepetition liab.                                250,000
Common Stock                                140,000
Deficit                                             (90,000)
                                                     $ 380,000

Under the reorganization plan, the reorganization value has been set at $320,000. Prepetition liabilities include $30,000 of trade Accounts Payable and a $220,000 Note Payable to Bigg Bank. The reorganization plan calls for the Prepetition accounts payable to be paid at 80% at a later date, and the Note Payable for $220,000 to be replaced by a Note Payable for $76,000 and the issuance of common stock of the new entity for $100,000. The former stockholders will receive $40,000 in common stock of the new entity, Hilfmir, in exchange for their shares.

Show the calculations to determine if Hilfmir is eligible for fresh-start accounting, and prepare a fresh-start balance sheet for the new entity, Hilfmir, as of July 1, 2014.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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