Problem

Lowstep Corporation filed for relief under Chapter 11 of the bankruptcy act on January 2,...

Lowstep Corporation filed for relief under Chapter 11 of the bankruptcy act on January 2, 2011. A summary of Lowstep’s assets and equities on this date, and at June 30, 2011, follows. Estimated fair values of Lowstep’s assets at June 30 are also shown.

 

January 2, 2011 June 30, 2011

 

Per Books

Per Books

Estimated Fair Value

Assets

 

 

 

Cash

$200

$6,700

$6,700

Trade receivables—net

800

1,000

1,000

Inventories

2,000

1,600

2,000

Prepaid items

500

Land

1,000

1,000

2,000

Buildings—net

3,000

2,900

1,500

Equipment—net

2,000

1,800

1,800

Patent

4,500

4,000

0

 

$14,000

$19,000

$15,000

Equities

 

 

 

Accounts payable

$1,000

$3,000

 

Wages payable

500

1,000

 

Bank note payable (includes $500 interest)

5,000

 

 

Long-term note payable (secured with equipment)

6,000

 

 

Prepetition liabilities allowed

 

12,500

 

Common stock

7,000

7,000

 

Deficit

(5,500)

(4,500)

 

 

$14,000

$19,000

 

The parties in interest agree to a reorganization plan on July 1, 2011, and a hearing to confirm that the plan is fair and equitable is scheduled for July 8. Under the reorganization plan, the reorganization value is set at $16,000, and the debt and equity holders will receive value as follows:

 

To Receive Cash Consideration

To Receive Noncash Consideration

Postpetition Claims

 

 

Accounts payable (in full)

$3,000

 

Wages payable (in full)

1,000

 

Prepetition Claims

 

 

Accounts payable (80%)

800

 

Wages payable (80%)

400

 

Bank note payable and interest (80%)

 

$2,000 note payable

 

 

2,000 common stock

Long-term note payable (80%)

 

1,800 note payable

 

 

3,000 common stock

Common stockholders*

 

2,000 common stock

 

$5,200

$10,800

*Reorganization value over consideration allocated to creditors.

The reorganization plan is confirmed on July 8, 2011, under the new name of Highstep Corporation. There are no asset or liability changes between July 1 and July 8.

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