Tessa Ltd. which operated under Chapter 11 of the bankruptcy act, released its balance sheet when they submited their reorganization plan as follows (in thousands): August 1, 2014 Cash and equivalents Accounts receivable $ 275 200 Inventories 250 300 350 Land Buildings - net Equipment - net Total assets 300 $1675 S1,500 Liabilities subject to compromise Accounts payable Wages payable Bond payable Interest payable Total liabilities 200 100 400 100 $2,300 $ 900 |(1,525) S1,675 Common stock Deficit Total equity Tessa's reorganization plan is as follows: 1. Bondholders agree to accept $200,000 of new common stock, $150,000 of senior debt of 12% bonds, and S50,000 cash payable at December 31, 2014. 2. Priority tax claims of $100,000 will be paid after reorganization plan is confirmed. 3. Accounts payable will be settled using $200,000 of new common stock and $300,000 of subordinate debts. 4. Current accrued interest payable on bonds is forgiven. 5. Equity holders will exchange their stock with $250,000 of new common stock. REQUIRED: Show calculations and determine whether Tessa is confirmed for a fresh-start reporting.

Tessa Ltd. which operated under Chapter 11 of the bankruptcy act, released its balance sheet when they submited their reorganization plan as follows (in thousands): August 1, 2014 Cash and equivalents Accounts receivable $ 275 200 Inventories 250 300 350 Land Buildings - net Equipment - net Total assets 300 $1675 S1,500 Liabilities subject to compromise Accounts payable Wages payable Bond payable Interest payable Total liabilities 200 100 400 100 $2,300 $ 900 |(1,525) S1,675 Common stock Deficit Total equity Tessa's reorganization plan is as follows: 1. Bondholders agree to accept $200,000 of new common stock, $150,000 of senior debt of 12% bonds, and S50,000 cash payable at December 31, 2014. 2. Priority tax claims of $100,000 will be paid after reorganization plan is confirmed. 3. Accounts payable will be settled using $200,000 of new common stock and $300,000 of subordinate debts. 4. Current accrued interest payable on bonds is forgiven. 5. Equity holders will exchange their stock with $250,000 of new common stock. REQUIRED: Show calculations and determine whether Tessa is confirmed for a fresh-start reporting.

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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