Page 133 - Bankruptcy Volume 1

This entry records any needed adjustments as a result of the adoption of fresh-start reporting, eliminates
the deficit in retained earnings, and reports the excess of reorganization value over the value of identifi-
able assets. In this example, no entry is required for deferred taxes because the difference between the
tax basis and the book basis after the adoption of fresh-start reporting is less than the amount of the NOL
carryover.

The following presentation would ordinarily be included in the debtor’s disclosure statement based on
projected results of the reorganization and in the footnotes of the reorganized entity upon emergence.

(in thousands) Debtor’s Record Record Record New Co.
Closing Cancellation Cancellation Adoption Opening
Balance of Debt of Equity of Fresh- Balance
Sheet Start Ac- Sheet
counting
Cash 4,000 (2,500) 1,500
Inventory 23,000 2,000 25,000

Accounts receiva- 35,000 35,000
ble (net)
Other 4,600 (4,600) 0

Property, plant, 2,300 1,000 3,300
and equipment
(net)
Trademarks 0 10,000 10,000
Related party ad- 8,000 (8,000) 0
vance and other
Goodwill 2,700 2,700
Total assets 76,900 (2,500) 0 3,100 77,500

Taxes 2,500 (2,500) 0
Accounts payable 5,000 5,000
Administrative 2,500 (2,500) 0
expenses
0

Taxes payable 6 2,500 2,500
year note
Line of credit 20,000 20,000

Long-term bank 15,000 15,000
loan
Long-term unse- 5,000 5,000
cured loan
0

Liabilities subject 75,000 (75,000) 0
to compromise
Total liabilities 85,000 (37,500) 0 0 47,500

Stockholders' eq-
uity

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