Question

On January 2, 20X2, Hobbes Company fies a petition for reief under Chapter 11 of the B ankruptcy Code. Hobbes had disastrous operating performance during the recent recession and needs time to reestablish profitable operations. The trial balance on January 2, 20X2, follows Debit $ 16.000 65.500 103,700 620,400 Credit Cash Accounts Receivable (net) Inventory Property, Plant and Equipment Accumulated Depreciation Accounts Payable Notes Payable, 10 % Bonds Payable 12 % Interest Payable Preferred Stock Common Stock, $1 par Additional Pald-in Capital Retained Eanings (deficit) $141,700 139 400 168.100 250,900 48 200 50.200 50,200 76.200 119,300 Total $924.900 $924 900 The folowing information applies to the 20X2 fiscal year ending December 31 20X2 Hobbes is in reorganization proceedings for the entire year, and the plan of reorganization has not been approved as of December 31, 20x2. The deblor retained possession of the company during the year Income Data for 20X2 1. Sales revenue of $247,500 is generated during the year 2. Cost of goods sold is $168,100 as a result of cost reduction programs implemented during the year 3. Selling, operating and administrative expenses are $51.300 for the year 4. Interest expense is $4.200. Contractual interest would have been $52.400 for the year 5. Reorganization items include $16,500 in fees paid to professionals and $4,200 of interest eamed on cash accumulated as a result of the Chapter 11 proceedings 6 The income tax of $3,200 on operating income was paid during the year 7. Discontinued operations included a $17.900 loss on operations, net of tax and a $8.200 gain on the sale of assets, net of tax The bankruptcy court administered the sale of the assets under the Chapter 11 proceedings Cash Flow Data for 20X2 1 A total of $266.900 is received from customers. This includes $19,400 recuived on thee accounts receivable that were outstanding prior to filing the petition 2. A total of S206.900 is paid to suppliers, employees, and others for operations 3 The curent interest uxpense of 54.200 on postpetition dobt is paid during the year 4 Professional fees of $16,500 are paid, and interest on cash accumulations of $4,200 is received 5 Net cash used by discontinued operations, exckading the sale of assets, is $4,200 6 The proceeds from the sale of the discontinued assets is $19.400 The bankruptcy court administored this sale 7 Hobbes borowed $11.200 in short-term debt as part of a financieg plan administered by the court 8. The court authorized a payment of $11,200 on the bonds payable. The ending cash balance of $74.700 represents an increase of $58,700 during the year

Answer 1

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Hobbes Company (Debtor-in-Possession) Income Statement For the Year December 31, 20X2 Revenue: Sales S 247,500 Cost of Goods Sold 168,100 Selling, Operating, and Administrative Interest (contractual interest $52,400) 51,300 4,200 223,600 Earnings before Reorganization Items and Income Taxes 23,900 Reorganization Items: Professional Fees $ (16,500) Interest Earned on Accumulated Cash Resulting from Chapter 11 Proceeding Total Reorganization Items 4,200 (12,300) Income before Income Tax and Discontinued Operations 11,600 Income Tax (3,200) Income before Discontinued Operations $ 8,400 Discontinued Operations: Operating Loss, Net-of-Tax (17,900) Gain on Sale of Assets, Net-of-Tax Net Discontinued $ 8,200 Operations (9,700) Net Loss (1,300)

Q3

Statement of cash flows Cash Flows from Operating Activities: Cash Received from Customers 266,900 Cash Paid to Suppliers and Employees (206,900) (4,200) Interest Paid Neet cash provided by continuing operating Activities before reorganization items $ 55,800 Operating Cash Flows from Reorganization Activties Professional Fees (16,500) Interest Received on Cash Accumulated Because of Chapter 11 Proceeding 4,200 Net Cash Used by Reorganization Items (12,300) ting Cash Flows from Discontinued Ope ons: Net Cash Used by Discontinued Operations (4,200) Net Cash Provided by Operating Activities Cash Flows Provided by Investing Activities: 39,300 Proceeds from Sale of Assets Due to Chapter 11 Proceeding Net Cash Provided by Investing Activities 19,400 S 19,400 Cash Flows Provided by Financing Activities: Net Borrowings under Short-Term Financing Plan $ 11,200 Principal Payments on Pre-petition Debt Authorized by Court (Bonds Payable) Net Cash Provided by Financing Activities (11,200) Net Increase in Cash $ 58,700 Cash at January 1, 20X2 Cash at December 31, 20X2 $ 16,000 74,700

Balance Sheet 74,700 Cash Accounts Receivable (net) Inventory Total Current Assets 46,100 $ 88,300 209,100 Property, Plant, and Equipment (net) Total Assets 463,200 $ 672,300 Liabilties Liabilities Not Subject to Compromise Current Liabilities (post petition): Short-Term Borrowings $ 11,200 Accounts Payable - Trade Total Liabilities Not Subject to Compromise 9,700 20,900 Liabilities Subject to Compromise (pre-petition): Accounts Payable Notes Payable, 10% Bonds Payable, 12% Accrued Interest Payable Total Liabilities Subject to Compromise 139,400 $ 168,100 239,700 48,200 $ 595,400 Total Liabilities Stockholder's equity Preferred Stock 616,300 50,200 Common Stock ($1 par) Additional Paid-In Capital 50,200 76,200 Retained Earnings (Deficit) Total Shareholders' Equity Total Liabilities and Shareholders' Equity (120,600) $ 56,000 672,300