Page 134 - Bankruptcy Volume 1

(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
Common stock 3,500 900 (3,400) (500) 500
Additional paid in 26,100 3,400 29,500
capital
Retained earnings (11,600) 8,000 3,600 0
(deficit)
Total stockholders' (8,100) 35,000 0 3,100 30,000
equity
Total liabilities 76,900 (2,500) 0 3,100 77,500
and stockholders'
equity

Reporting by Debtors Not Qualifying for Fresh-Start

Entities emerging from Chapter 11 that do not meet both conditions for adopting fresh-start reporting
should follow guidance applicable to entities that are not in Chapter 11 when recording the effects of a
confirmed plan of reorganization.

Adjustments to the financial statements of reorganized debtors not qualifying for fresh-start accounting
are typically limited to recording the effect of settlements with creditors under the confirmed plan and
any permanent impairment of assets that may accompany the implementation of the plan.

Liabilities compromised and liabilities issued through confirmed plans should be stated at present values
of amounts to be paid, determined at appropriate interest rates. Forgiveness of debt, if any, should be re-
ported as an extinguishment of debt and generally classified as a reorganization item. The requirements
of FASB ASC 470-60, Debt—Troubled Debt Restructurings by Debtors, should also be considered in
these situations.

FASB ASC 852 does not preclude the reporting entity from subsequently adopting quasi-reorganization
accounting when fresh-start accounting is not applicable. However, quasi-reorganization accounting
may not be used to account for the confirmation of the plan on emerging from Chapter 11.

Debtors who have confirmed plans of liquidation are required to follow FASB ASC 205-30, Presenta-
tion of Financial Statements—Liquidation Basis of Accounting, upon confirmation. Liquidating Trusts
that may be established as part of a plan of reorganization are also required to follow this guidance.

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