ASC

ASC 852-10

Overall

852 Reorganizations

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In brief

AdvancedFinancial statement presentationDisclosureDebt and equityCash flows

ASC 852-10 governs financial reporting by entities that have filed a Chapter 11 petition and expect to reorganize as going concerns, plus their reporting upon emergence under a confirmed plan. During the case, GAAP continues to apply but the statements must separate reorganization-related transactions from ongoing operations: prepetition liabilities subject to compromise are segregated on the balance sheet at expected allowed amounts, and reorganization items are shown separately in the income statement and cash flow statement. On emergence, an entity adopts fresh-start reporting only if reorganization value is less than postpetition liabilities plus allowed claims and pre-confirmation voting shareholders receive less than 50% of the emerging entity's voting shares.

Key points (7)
  • Entering Chapter 11 does not change the GAAP an entity applies, but financial statements for periods including and after the filing must distinguish transactions and events directly associated with the reorganization from ongoing operations (852-10-45-1 through 45-2).
  • The balance sheet must separate prepetition liabilities subject to compromise from those not subject to compromise and from postpetition liabilities; liabilities that may be affected by the plan are reported at expected allowed amounts under Subtopic 450-20, and doubtful secured claims stay in the subject-to-compromise category (852-10-45-4 through 45-5).
  • Revenues, expenses (including professional fees), realized gains and losses, and loss provisions resulting from the reorganization are reported separately as reorganization items; professional fees are expensed as incurred, not deferred or accrued at filing (852-10-45-9 through 45-10).
  • Interest expense is reported only to the extent it will be paid or is probable to be an allowed priority, secured, or unsecured claim and is not a reorganization item, while interest income earned only because of the proceeding is a reorganization item; the difference between reported and contractual interest must be disclosed (852-10-45-11, 45-12, 852-10-50-3).
  • Reorganization items are presented separately within operating, investing, and financing categories of the statement of cash flows (direct method preferred); if the indirect method is used, related operating receipts and payments go in a supplementary schedule or the notes (852-10-45-13, 852-10-50-6A).
  • Fresh-start reporting is required upon emergence only if reorganization value of the assets immediately before confirmation is less than total postpetition liabilities and allowed claims and pre-confirmation voting shareholders receive less than 50% of the emerging entity's voting shares, with the loss of control substantive and not temporary (852-10-45-19).
  • Under fresh-start reporting the reorganization value is assigned to assets and liabilities using Subtopic 805-20 procedures with any residual reported as goodwill, the new entity starts with no retained earnings or deficit, debt forgiveness is reported as extinguishment under Subtopic 220-20, and comparative statements straddling the confirmation date are prohibited (852-10-45-20, 45-21, 45-26).

For students. Exam questions almost always hinge on the two-part fresh-start test in 852-10-45-19 (reorganization value < postpetition liabilities plus allowed claims AND old shareholders get <50% of new voting shares) — both must be met, and failing them means the emerging entity merely restates compromised liabilities at present value instead of resetting its balance sheet. A common misunderstanding is treating interest expense as a reorganization item; it is not, and interest is only recorded to the extent it will be paid or is probably an allowed claim.

liabilities subject to compromisereorganization itemsfresh-start reportingreorganization valueallowed claimsplan of reorganization confirmationdebtor-in-possessionforgiveness of debt

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852-10-00Status

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852-10-05Overview and Background

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852-10-05-1
The Reorganizations Topic includes the following Subtopics:
  1. a
    Overall
  2. b
    Quasi-Reorganizations
  3. c
    Income Taxes.
852-10-05-2
This Subtopic addresses the accounting and financial statement disclosure for entities that have filed petitions with the Bankruptcy Court and expect to reorganize as going concerns under Chapter 11 of the Bankruptcy Code. This Subtopic necessarily contains many references to provisions of the Bankruptcy Code; however, the material in this Subtopic should not be relied upon as definitive interpretations of the law for any purposes. The accounting and reporting guidance in this Subtopic is incremental to guidance that otherwise applies to an entity.
852-10-05-3
An entity enters reorganization under Chapter 11 by filing a petition with the Bankruptcy Court, an adjunct of the United States District Courts. The filing of the petition starts the reorganization proceeding. The goal of the proceeding is to maximize recovery by creditors and shareholders by preserving it as a viable entity with a going concern value. For that purpose, the entity prepares a plan of reorganization intended to be confirmed by the court. The plan provides for treatment of all the assets and liabilities of the debtor, which might result in forgiveness of indebtedness. For the plan to be confirmed and the reorganization proceedings thereby concluded, the consideration to be received by parties in interest under the plan must exceed the consideration they would otherwise receive on liquidation of the entity under Chapter 7 of the Bankruptcy Code. The court may confirm a plan even if some classes of creditors or some of the stockholders have not accepted it, provided that it meets standards of fairness required by Chapter 11 to the dissenting class of creditors or the dissenting stockholders.
852-10-05-4
The plan is the heart of every Chapter 11 reorganization. The provisions of the plan specify the treatment of all creditors and equity holders upon its approval by the Bankruptcy Court. Moreover, the plan shapes the financial structure of the entity that emerges.
852-10-05-5
Chapter 11 provides that, unless a trustee is appointed, the debtor has the exclusive right to file a plan for the first 120 days of the case, or such longer or shorter time as the Bankruptcy Court decrees, for cause. If a plan is filed within the exclusive period, additional time is provided to allow the debtor to obtain plan acceptance. The appointment of the trustee immediately terminates the debtor's exclusive right to file a plan, and any party in interest may then do so.
852-10-05-6
Except to the extent that specific debts are determined by the Bankruptcy Court not to be discharged by the plan, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring assets under the plan, and any creditor, equity security holder, or general partner in the debtor, regardless of whether the claim is impaired under the plan and whether such creditor, equity security holder, or general partner has accepted the plan. A claim is impaired if, subject to certain rights to cure defaults, its legal rights are affected adversely by the plan.
852-10-05-7
In general, except as provided in the plan or in the order confirming the plan, confirmation of the plan discharges the debtor from all preconfirmation claims and terminates all rights and interest of equity security holders or general partners as provided for in the plan.
852-10-05-8
The Bankruptcy Court confirms a plan if it finds all of the following:
  1. a
    The plan and the plan proponent have complied with various technical requirements of the Bankruptcy Code.
  2. b
    Disclosures made in soliciting acceptance of the plan have been adequate.
  3. c
    Dissenting members of consenting classes of impaired claims would receive under the plan at least the amount they would have received under a Chapter 7 proceeding.
  4. d
    Claims entitled to priority under the Bankruptcy Code will be paid in cash.
  5. e
    Confirmation of the plan is not likely to be followed by liquidation or further reorganization.
  6. f
    At least one class of impaired claims, apart from insiders, has accepted the plan.
  7. g
    The plan proponent has obtained the consent of all impaired classes of claims or equity securities, or the plan proponent can comply with the cram-down provisions of the Bankruptcy Code. Under the cram-down provisions, the court may confirm a plan even if one or more classes of holders of impaired claims or equity securities do not accept it, as long as the court finds the plan does not discriminate unfairly and is fair and equitable to each nonconsenting class impaired by the plan.
852-10-05-9
In general, a secured claim is deemed to be treated fairly and equitably if it remains adequately collateralized and will receive a stream of payments whose discounted value equals the amount of the secured claim on the effective date of the plan. In general, an unsecured claim is deemed to be treated fairly and equitably if it receives assets whose discounted value equals the allowed amount of the claim, or if the holder of any claim or equity security interest that is junior to the dissenting class will not receive or retain any assets under the plan. Similarly, an equity security interest is deemed fairly and equitably treated if that interest receives assets whose discounted value equals the greatest of any fixed liquidation preference, any fixed redemption price, or the value of such interest, or if no junior equity security interest will receive any assets under the plan.

Reorganization Value

852-10-05-10
An important part of the process of developing a plan is the determination of the reorganization value of the entity that emerges from bankruptcy. Reorganization value generally approximates fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the restructuring. The reorganization value of an entity is the amount of resources available and to become available for the satisfaction of postpetition liabilities and allowed claims and interest, as negotiated or litigated between the debtor-in-possession or trustee, the creditors, and the holders of equity interests. Reorganization value includes the sum of the value attributed to the reconstituted entity and other assets of the debtor that will not be included in the reconstituted entity. Reorganization value and the terms of the plan are determined only after extensive arm's-length negotiations or litigation between the interested parties. Before the negotiations, the debtor-in-possession, creditors, and equity holders develop their own ideas on the reorganization value of the entity that will emerge from Chapter 11. Several methods are used to determine the reorganization value; however, generally it is determined by discounting future cash flows for the reconstituted business that will emerge from Chapter 11 and from expected proceeds or collections from assets not required in the reconstituted business, at rates reflecting the business and financial risks involved.

The Disclosure Statement

852-10-05-11
A disclosure statement approved by the court is transmitted to all parties entitled to vote on the plan at or before the time their acceptance of the plan is solicited. The disclosure statement provides information that enables them to make informed judgments about the plan.
852-10-05-12
No postpetition solicitation of acceptance of a plan may be made unless by the time of the solicitation a disclosure statement previously approved by the Bankruptcy Court has been sent to those whose acceptance is required. The disclosure statement must contain adequate information, which is defined in the Bankruptcy Code as information that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan, as far as it is reasonably practicable to provide in light of the nature and history of the emerging entity and the condition of the emerging entity's records. Examples of the kinds of items that may be included in disclosure statements to provide such information include a summary of the reorganization plan, historical and prospective financial information, and a pro forma balance sheet reporting the reorganization value and the capital structure of the emerging entity.
852-10-05-13
What constitutes adequate information depends on the circumstances of the entity in Chapter 11, the nature of the plan, and the sophistication of the various classes whose acceptance is required. Although a valuation is not required for a Bankruptcy Court's approval of a disclosure statement, the instances in which valuations are not made are generally restricted to those in which the reorganization value of the emerging entity is greater than the liabilities or in which holders of existing voting shares retain more than 50 percent of the emerging entity's voting shares when the entity emerges from reorganization.
852-10-05-14
After reorganization proceedings have started, acceptances of a plan may not be solicited by any person without a disclosure statement approved by the court, but acceptances obtained before the proceedings started may be counted if they were solicited in compliance with applicable nonbankruptcy law governing the adequacy of disclosure or there is not any applicable nonbankruptcy law but there was in fact adequate information provided at the time of the prebankruptcy solicitation of acceptances of the plan.
852-10-05-15
While the court determines the adequacy of the disclosure statement, entities that expect to adopt fresh-start reporting (see Section 852-10-45 for guidance on what is referred to as fresh-start reporting) should report information about the reorganization value in the disclosure statement, so that creditors and stockholders can make an informed judgment about the plan. The most likely place to report the reorganization value is in the pro forma balance sheet that is commonly part of the disclosure statement. Because reorganization value may not have been allocated to individual assets concurrently with the preparation of the pro forma balance sheet included in the disclosure statement in some cases, it may be necessary to include in the pro forma balance sheet a separate line item to reflect the difference of the total reorganization value of the emerging entity over recorded amounts. When possible, reorganization value should be segregated into major categories.

The Financial Reporting Consequences of the Absolute Priority Doctrine

852-10-05-16
Under the absolute priority doctrine of the Bankruptcy Code, if the amount of postpetition liabilities and allowed claims exceeds the reorganization value of the emerging entity, existing shareholders lose their legal right to any economic interest without the consent of creditors. Therefore, any equity interest in the emerging entity ultimately held by existing shareholders is given to them by the creditors. Among the reasons the creditors might give such shareholders equity interests in the emerging entity are to avoid the expensive and time-consuming legal proceedings necessary to implement the cram-down provisions of the Bankruptcy Code or to preserve continuity of management. Consequently, in this situation, if all of the conditions stated in paragraph 852-10-45-19 are met, then upon an entity's emergence from Chapter 11, this Subtopic requires the entity to adopt fresh-start reporting.

Terms

852-10-05-17
The following terms are widely used when addressing reorganizations, yet are not included in the text of the standards:
  1. a
    Administrative expenses
  2. b
    Obligations subject to compromise
  3. c
    Undersecured claim.

852-10-10Objectives

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852-10-10-1
Presenting an entity's financial evolution in its financial statements during a Chapter 11 reorganization proceeding is an objective of the guidance in this Subtopic.

852-10-15Scope and Scope Exceptions

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Entities

852-10-15-1
This Subtopic provides guidance on financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize as going concerns under Chapter 11 of title 11 of the United States Code. The guidance in this Subtopic applies to all entities except governmental organizations.

Transactions

852-10-15-2
The guidance in this Subtopic applies to the following transactions and activities:
  1. a
    Reorganizations by entities that expect to reorganize as a going concern under Chapter 11
  2. b
    Reorganizations by entities upon emergence from Chapter 11 under confirmed plans.
852-10-15-3
The guidance in this Subtopic does not apply to the following transactions and activities:
  1. a
    Debt restructurings outside of Chapter 11
  2. b
    Reorganization activities consisting of liquidation or adoption of plans of liquidation under the Bankruptcy Code.

852-10-25Recognition

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852-10-25-1
As explained in paragraph 852-10-45-1, entering a reorganization proceeding, although a significant event, does not ordinarily affect or change the application of generally accepted accounting principles (GAAP) followed by the entity in the preparation of its financial statements. However, the needs of financial statement users change, and thus changes in the reporting practices previously followed by the entity are necessary.
852-10-25-2
See Section 852-10-45 for financial statement presentation guidance applicable to entities during and after reorganization proceedings.

852-10-30Initial Measurement

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852-10-30-1
As explained in paragraph 852-10-45-1, entering a reorganization proceeding, although a significant event, does not ordinarily affect or change the application of generally accepted accounting principles (GAAP) followed by the entity in the preparation of its financial statements. However, the needs of financial statement users change, and thus changes in the reporting practices previously followed by the entity are necessary.
852-10-30-2
See Section 852-10-45 for financial statement presentation guidance applicable to entities during and after reorganization proceedings.

852-10-45Other Presentation Matters

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Financial Reporting during Reorganization Proceedings

852-10-45-1
Entering a reorganization proceeding, although a significant event, does not ordinarily affect or change the application of generally accepted accounting principles (GAAP) followed by the entity in the preparation of its financial statements. However, the needs of financial statement users change, and thus changes in the reporting practices previously followed by the entity are necessary.
852-10-45-2
For the purpose of presenting an entity's financial evolution during a Chapter 11 reorganization (see paragraph 852-10-10-1), the financial statements for periods including and after filing the Chapter 11 petition shall distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.
852-10-45-3
Example 1 (see paragraph 852-10-55-2) provides an illustration of financial statements and notes thereto for an entity operating under Chapter 11.
852-10-45-4
The balance sheet of an entity in Chapter 11 shall distinguish prepetition liabilities subject to compromise from those that are not (such as fully secured liabilities that are expected not to be compromised) and postpetition liabilities. Liabilities that may be affected by the plan shall be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the plan of reorganization, the entire amount of the claim shall be included with prepetition claims subject to compromise; such a claim shall not be reclassified unless it is subsequently determined that the claim is not subject to compromise.
852-10-45-5
Prepetition liabilities, including claims that become known after a petition is filed, shall be reported on the basis of the expected amount of the allowed claims in accordance with Subtopic 450-20, as opposed to the amounts for which those allowed claims may be settled. Once these claims satisfy the accrual provisions of that Subtopic, they shall be recorded in the accounts in accordance with this paragraph. Paragraph 852-10-50-2 notes that claims not subject to reasonable estimation are required to be disclosed in the notes to financial statements.
852-10-45-6
Debt discounts or premiums as well as debt issue costs shall be viewed as valuations of the related debt. When the debt has become an allowed claim and the allowed claim differs from the net carrying amount of the debt, the recorded amount shall be adjusted to the amount of the allowed claim (thereby adjusting existing discounts or premiums, and deferred issue costs to the extent necessary to report the debt at this allowed amount). The gain or loss resulting from the entries to record the adjustment shall be classified as reorganization items, as discussed in paragraph 852-10-45-9. Premiums and discounts as well as debt issuance cost on debts that are not subject to compromise, such as fully secured claims, shall not be adjusted.
852-10-45-7
Paragraph 852-10-45-4 addresses the separation of liabilities subject to compromise from those that are not. Circumstances arising during reorganization proceedings may require a change in the classification of liabilities between those subject to compromise and those not subject to compromise. Liabilities not subject to compromise shall be further segregated into current and noncurrent classifications if the entity presents a classified balance sheet.
852-10-45-8
Section 470-10-45 requires current liabilities classification in a classified balance sheet for long-term liabilities that, by their terms, are due on demand or will be due on demand within one year, or the operating cycle, if longer. This classification requirement also applies to long-term liabilities that are or will be callable by the creditor because of a violation of a provision of the debt agreement. The automatic stay provisions of Chapter 11 make it unnecessary to reclassify prepetition long-term liabilities even though prepetition creditors might demand payment or there is a violation of a covenant in the debt agreement.
852-10-45-9
The statement of operations shall portray the results of operations of the reporting entity while it is in Chapter 11. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business shall be reported separately as reorganization items, except for those required to be reported as discontinued operations in conformity with Subtopic 205-20.
852-10-45-10
It is not appropriate to defer professional fees and similar types of expenditures until the plan is confirmed and then reduce gain from debt discharge to the extent of the previously deferred expenses. It is also not appropriate to accrue professional fees and similar types of expenditures upon the filing of the Chapter 11 petition. Rather, because professional fees and similar types of expenditures directly relating to the Chapter 11 proceeding do not result in assets or liabilities, they shall be expensed as incurred and reported as reorganization items.
852-10-45-11
Interest expense shall be reported only to the extent that it will be paid during the proceeding or that it is probable that it will be an allowed priority, secured, or unsecured claim. Interest expense is not a reorganization item.
852-10-45-12
Interest income earned by an entity in Chapter 11 that it would not have earned but for the proceeding, normally all interest income, shall be reported as a reorganization item.
852-10-45-13
Reorganization items shall be presented separately within the operating, investing, and financing categories of the statement of cash flows. This presentation can be better accomplished by the use of the direct method of presenting the statement. Paragraph 230-10-45-25 lists the operating items that shall be reported separately when the direct method is used. That paragraph encourages further breakdown of those operating items if the entity considers such a breakdown meaningful and feasible. Further identification of cash flows from reorganization items should be provided to the extent feasible. For example, interest received might be segregated between estimated normal recurring interest received and interest received on cash accumulated because of the reorganization. If the indirect method is used, details of operating cash receipts and payments resulting from the reorganization shall be disclosed in a supplementary schedule or in the notes to financial statements. (See paragraph 852-10-50-6A.)
852-10-45-14
Consolidated financial statements that include one or more entities in reorganization proceedings and one or more entities not in reorganization proceedings shall include condensed combined financial statements of the entities in reorganization proceedings. The combined financial statements shall be prepared on the same basis as the consolidated financial statements.
852-10-45-15
In addition to making the required paragraph 852-10-50-4 disclosures, the propriety of the carrying amounts of intra-entity receivables from entities in Chapter 11 shall be evaluated.
852-10-45-16
Earnings per share (EPS) shall be reported, if required, in conformity with Topic 260. If it is probable that the plan will require the issuance of common stock or common stock equivalents, thereby diluting current equity interests, that fact shall be disclosed.

Financial Reporting When Entities Emerge from Chapter 11 Reorganization

852-10-45-17
Entities whose plans have been confirmed by the court and have thereby emerged from Chapter 11 shall apply the reporting principles in paragraphs
852-10-45-19 through 45-29
as of the confirmation date or as of a later date, as discussed in the following paragraph, when all material conditions precedent to the plan's becoming binding are resolved.
852-10-45-18
The effects of a plan should be included in the entity's financial statements as of the date the plan is confirmed. However, inclusion shall be delayed to a date not later than the effective date if there is a material unsatisfied condition precedent to the plan's becoming binding on all the parties in interest or if there is a stay pending appeal. That might occur, for example, if obtaining financing for the plan or for the transfer of material assets to the debtor by a third party is a condition to the plan's becoming effective. Financial statements prepared as of the date after the parties in interest have approved a plan through the voting process, and issued after the plan has been confirmed by the court, shall report the effects of the plan if there are no material unsatisfied conditions.
852-10-45-19
If the reorganization value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all postpetition liabilities and allowed claims, and if holders of existing voting shares immediately before confirmation receive less than 50 percent of the voting shares of the emerging entity, the entity shall adopt fresh-start reporting upon its emergence from Chapter 11. The loss of control contemplated by the plan must be substantive and not temporary. That is, the new controlling interest must not revert to the shareholders existing immediately before the plan was filed or confirmed.
852-10-45-20
Entities that adopt fresh-start reporting in conformity with the preceding paragraph shall apply the following principles:
  1. a
    The reorganization value of the entity shall be assigned to the entity's assets and liabilities in conformity with the procedures specified by Subtopic 805-20. If any portion of the reorganization value cannot be attributed to specific tangible or identified intangible assets of the emerging entity, such amounts shall be reported as goodwill in accordance with paragraph 350-20-25-2.
  2. b
    Subparagraph not used.
  3. c
    Deferred taxes shall be determined under the requirements of paragraph 852-740-45-1.
  4. d
    Subparagraph not used.
852-10-45-21
The financial statements of the entity as of and for the period immediately preceding the date determined in conformity with the guidance in paragraph 852-10-45-17 shall reflect all activity through that date in conformity with the guidance in paragraphs
852-10-45-1 through 45-16
. Additionally, the effects of the adjustments on the reported amounts of individual assets and liabilities resulting from the adoption of fresh-start reporting and the effects of the forgiveness of debt shall be reflected in the predecessor entity's final statement of operations. Forgiveness of debt, if any, shall be reported as an extinguishment of debt and classified in accordance with Subtopic 220-20. Adopting fresh-start reporting results in a new reporting entity with no beginning retained earnings or deficit. When fresh-start reporting is adopted, the notes to the initial fresh-start financial statements shall disclose the additional information identified in paragraph 852-10-50-7.
852-10-45-26
Fresh-start financial statements prepared by entities emerging from Chapter 11 will not be comparable with those prepared before their plans were confirmed because they are, in effect, those of a new entity. Thus, comparative financial statements that straddle a confirmation date shall not be presented.
852-10-45-27
Regulatory agencies may require the presentation of predecessor financial statements. However, such presentations shall not be viewed as a continuum because the financial statements are those of a different reporting entity and are prepared using a different basis of accounting, and, therefore, are not comparable. Attempts to disclose and explain exceptions that affect comparability would likely result in reporting that is so unwieldy it would not be useful.
852-10-45-28
Example 2 (see paragraph 852-10-55-4) provides an illustration of fresh-start reporting and the related illustrative notes to financial statements.
852-10-45-29
Entities emerging from Chapter 11 that do not meet the criteria in paragraph 852-10-45-19 do not qualify for fresh-start reporting. Liabilities compromised by confirmed plans shall be stated at present values of amounts to be paid, determined at appropriate current interest rates. Forgiveness of debt, if any, shall be reported as an extinguishment of debt and classified in accordance with Subtopic 220-20.

852-10-50Disclosure

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852-10-50-1
This Section provides incremental disclosure guidance for entities with transactions within the scope of this Subtopic. It is incremental to disclosure guidance otherwise applicable to an entity under other generally accepted accounting principles (GAAP).

Financial Reporting during Reorganization Proceedings

852-10-50-2
The notes to financial statements of an entity in Chapter 11 shall disclose both of the following:
  1. a
    Claims not subject to reasonable estimation based on the provisions of Subtopic 450-20
  2. b
    The principal categories of the claims subject to compromise.
852-10-50-3
The extent to which reported interest expense differs from stated contractual interest shall be disclosed. It may be appropriate to disclose this parenthetically on the face of the statement of operations.
852-10-50-4
Intra-entity receivables and payables of entities in reorganization proceedings shall be disclosed in the condensed combined financial statements referred to in paragraph 852-10-45-14.
852-10-50-5
Paragraph 852-10-45-16 identifies a situation in which disclosure of a probable issuance of common stock or common stock equivalents is required.
852-10-50-6
Example 1 (see paragraph 852-10-55-2) provides an illustration of financial statements and notes thereto for an entity operating under Chapter 11.
852-10-50-6A
If the indirect method is used to prepare the statement of cash flows, details of operating cash receipts and payments resulting from the reorganization shall be disclosed in a supplementary schedule or in the notes to financial statements. (See paragraph 852-10-45-13.)

Financial Reporting When Entities Emerge from Chapter 11 Reorganization and Adopt Fresh-Start Reporting

852-10-50-7
Paragraph 852-10-45-21 requires additional information to be disclosed in the notes to the initial fresh-start financial statements when fresh-start reporting is adopted. That additional information consists of all of the following:
  1. a
    Adjustments to the historical amounts of individual assets and liabilities
  2. b
    The amount of debt forgiveness
  3. c
    Significant matters relating to the determination of reorganization value, including all of the following:
    1. 1
      The method or methods used to determine reorganization value and factors such as discount rates, tax rates, the number of years for which cash flows are projected, and the method of determining terminal value
    2. 2
      Sensitive assumptions—that is, assumptions about which there is a reasonable possibility of the occurrence of a variation that would have significantly affected measurement of reorganization value
    3. 3
      Assumptions about anticipated conditions that are expected to be different from current conditions, unless otherwise apparent.

852-10-55Implementation Guidance and Illustrations

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852-10-55-1
This Section is an integral part of the requirements of this Subtopic. This Section provides illustrations that address the application of requirements to specific aspects of accounting and reporting for entities in reorganization under Chapter 11 of the Bankruptcy Code. The illustrations that follow may be based on provisions of law that are subject to change. These assumptions about the law are for illustrative purposes only.

Illustrations

852-10-55-2
The following Example illustrates the guidance in paragraphs
852-10-45-1 through 45-13
and
852-10-50-2 through 50-3
relating to financial statement reporting practices during the period that an entity is in reorganization. Illustrative financial statements and accompanying notes follow.
852-10-55-3
XYZ Company is a manufacturing concern headquartered in Tennessee, with a fiscal year ending on December 31. On January 10, 19X1, XYZ filed a petition for relief under Chapter 11 of the federal bankruptcy laws. The following financial statements (balance sheet and statements of operations and cash flows) are presented as of and for the year ended December 31.
  • Illustrative Financial Statements and Notes to Financial Statements for an Entity Operating Under Chapter 11
  • XYZ Company (Debtor in Possession) Balance Sheet "December 31, 19X1" Assets (000s) Current assets Cash $110 "Accounts receivable, net" 300 Inventory 250 Other current assets 30 Total current assets 690 "Property, plant and equipment, net" 430 Goodwill 210 Total assets " $1,330 " Liabilities and Shareholders' Deficit (000s) Liabilities not subject to compromise current liabilities: Short-term borrowings $25 Accounts payable—trade 200 Other liabilities 50 Total current liabilities 275 Liabilities subject to compromise " 1,100 " (a) Total liabilities " 1,375 " shareholders' (deficit) Preferred stock 325 Common stock 75 Retained earnings (deficit) (445) (45) Total Liabilities & Shareholders' (Deficit) " $1,330 " (a) Liabilities subject to compromise consist of the following: "Secured debt, 14%, secured by first mortgage on building" " $300,000 " (b) Priority tax claims " 50,000 " "Senior subordinated secured notes, 15%" " 275,000 " Trade and other miscellaneous claims " 225,000 " "Subordinated debentures, 17%" " 250,000 " " $1,100,000 " (b) "The secured debt in this case should be considered, due to various factors, subject to compromise." The accompanying notes are an integral part of the financial statements.
  • XYZ Company (Debtor-in-Possession) Statement of Operations "For the Year Ended December 31, 19X1" (000s) 19X1 Revenues: Sales " $2,400 " Cost and expenses: Cost of goods sold " 1,800 " "Selling, operating and administrative" 550 Interest (contractual interest $5) 3 " 2,353 " Earnings before reorganization items and income tax benefit 47 Reorganization items: Loss on disposal of facility (60) Professional fees (50) Provision for rejected executory contracts (10) Interest earned on accumulated cash resulting from Chapter 11 proceeding 1 (119) Loss before income tax benefit and discontinued operations (72) Income tax benefit 10 Loss before discontinued operations (62) Discontinued operations: Loss from operations of discontinued products segment (56) Net loss $(118) Loss per common share: Loss before discontinued operations $(0.62) Discontinued operations $(0.56) Net loss $(1.18) The accompanying notes are an integral part of the financial statements.
  • XYZ Company (Debtor-in-Possession) Statement of Cash Flows "For the Year Ended December 31, 19X1" Increase in Cash and Cash Equivalents (000s) 19X1 Cash flows from operating activities: Cash received from customers " $2,220 " Cash paid to suppliers and employees " (2,070)" Interest paid (3) Net cash provided by operating activities before reorganization items 147 Operating cash flows from reorganization items: Interest received on cash accumulated because of the Chapter 11 proceeding 1 Professional fees paid for services rendered in connection with the Chapter 11 proceeding (50) Net cash used by reorganization items (49) Net cash provided by operating activities 98 Cash flows from investing activities: Capital expenditures (5) Proceeds from sale of facility due to Chapter 11 proceeding 40 Net cash provided by investing activities 35 Cash flow used by financing activities: Net borrowings under short-term credit facility (post petition) 25 Repayment of cash overdraft (45) Principal payments on prepetition debt authorized by court (3) Net cash provided by financing activities (23) Net increase in cash and cash equivalents 110 Cash and cash equivalents at beginning of year - Cash and cash equivalents at end of year $110 Reconciliation of net loss to net cash provided by operating activities Net loss $(118) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 20 Loss on disposal of facility 60 Provision for rejected executory contracts 10 Loss on discontinued operations 56 Increase in postpetition payables and other liabilities 250 Increase in accounts receivable (180) Net cash provided by operating activities $98 The accompanying notes are an integral part of the financial statements.
  • XYZ Company Notes to Financial Statements December 31, 19X1
  • Note X—Petition for Relief Under Chapter 11
  • On January 10, 19X1, XYZ Company (the Debtor) filed petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Western District of Tennessee. Under Chapter 11, certain claims against the Debtor in existence before the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-possession. These claims are reflected in the December 31, 19X1, balance sheet as liabilities subject to compromise. Additional claims (liabilities subject to compromise) may arise after the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtor's assets (secured claims) also are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured primarily by liens on the Debtor's property, plant, and equipment.
  • The Debtor received approval from the Bankruptcy Court to pay or otherwise honor certain of its prepetition obligations, including employee wages and product warranties. The Debtor has determined that there is insufficient collateral to cover the interest portion of scheduled payments on its prepetition debt obligations. Contractual interest on those obligations amounts to $5,000, which is $2,000 in excess of reported interest expense; therefore, the debtor has discontinued accruing interest on these obligations. See Note X in Example 2 (paragraph 852-10-55-11) for a discussion of the credit arrangements entered into after the Chapter 11 filings.
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10XYZ Company is a manufacturing concern headquartered in Tennessee, with a fiscal year ending on December 31. On January 10, 19X1, XYZ filed a petition for relief under Chapter 11 of the federal bankruptcy laws. The following financial statements (balance sheet and statements of operations and cash flows) are presented as of and for the year ended December 31.
  • Illustrative Financial Statements and Notes to Financial Statements for an Entity Operating Under Chapter 11
  • XYZ Company (Debtor in Possession) Balance Sheet "December 31, 19X1" Assets (000s) Current assets Cash $110 "Accounts receivable, net" 300 Inventory 250 Other current assets 30 Total current assets 690 "Property, plant and equipment, net" 430 Goodwill 210 Total assets " $1,330 " Liabilities and Shareholders' Deficit (000s) Liabilities not subject to compromise current liabilities: Short-term borrowings $25 Accounts payable—trade 200 Other liabilities 50 Total current liabilities 275 Liabilities subject to compromise " 1,100 " (a) Total liabilities " 1,375 " shareholders' (deficit) Preferred stock 325 Common stock 75 Retained earnings (deficit) (445) (45) Total Liabilities & Shareholders' (Deficit) " $1,330 " (a) Liabilities subject to compromise consist of the following: "Secured debt, 14%, secured by first mortgage on building" " $300,000 " (b) Priority tax claims " 50,000 " "Senior subordinated secured notes, 15%" " 275,000 " Trade and other miscellaneous claims " 225,000 " "Subordinated debentures, 17%" " 250,000 " " $1,100,000 " (b) "The secured debt in this case should be considered, due to various factors, subject to compromise." The accompanying notes are an integral part of the financial statements.
  • XYZ Company (Debtor-in-Possession) Statement of Operations "For the Year Ended December 31, 19X1" (000s) 19X1 Revenues: Sales " $2,400 " Cost and expenses: Cost of goods sold " 1,800 " "Selling, operating and administrative" 550 Interest (contractual interest $5) 3 " 2,353 " Earnings before reorganization items and income tax benefit 47 Reorganization items: Loss on disposal of facility (60) Professional fees (50) Provision for rejected executory contracts (10) Interest earned on accumulated cash resulting from Chapter 11 proceeding 1 (119) Loss before income tax benefit and discontinued operations (72) Income tax benefit 10 Loss before discontinued operations (62) Discontinued operations: Loss from operations of discontinued products segment (56) Net loss $(118) Loss per common share: Loss before discontinued operations $(0.62) Discontinued operations $(0.56) Net loss $(1.18) The accompanying notes are an integral part of the financial statements.
  • XYZ Company (Debtor-in-Possession) Statement of Cash Flows "For the Year Ended December 31, 19X1" Increase in Cash and Cash Equivalents (000s) 19X1 Cash flows from operating activities: Cash received from customers " $2,220 " Cash paid to suppliers and employees " (2,070)" Interest paid (3) Net cash provided by operating activities before reorganization items 147 Operating cash flows from reorganization items: Interest received on cash accumulated because of the Chapter 11 proceeding 1 Professional fees paid for services rendered in connection with the Chapter 11 proceeding (50) Net cash used in reorganization items (49) Net cash provided by operating activities 98 Cash flows from investing activities: Capital expenditures (5) Proceeds from sale of facility due to Chapter 11 proceeding 40 Net cash provided by investing activities 35 Cash flows from financing activities: Net borrowings under short-term credit facility (post petition) 25 Repayment of cash overdraft (45) Principal payments on prepetition debt authorized by court (3) Net cash used in financing activities (23) Net increase in cash and cash equivalents 110 Cash and cash equivalents at beginning of year - Cash and cash equivalents at end of year $110 Reconciliation of net loss to net cash provided by operating activities Net loss $(118) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 20 Loss on disposal of facility 60 Provision for rejected executory contracts 10 Loss on discontinued operations 56 Increase in postpetition payables and other liabilities 250 Increase in accounts receivable (180) Net cash provided by operating activities $98 The accompanying notes are an integral part of the financial statements.
  • XYZ Company Notes to Financial Statements December 31, 19X1
  • Note X—Petition for Relief Under Chapter 11
  • On January 10, 19X1, XYZ Company (the Debtor) filed petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Western District of Tennessee. Under Chapter 11, certain claims against the Debtor in existence before the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-possession. These claims are reflected in the December 31, 19X1, balance sheet as liabilities subject to compromise. Additional claims (liabilities subject to compromise) may arise after the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtor's assets (secured claims) also are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured primarily by liens on the Debtor's property, plant, and equipment.
  • The Debtor received approval from the Bankruptcy Court to pay or otherwise honor certain of its prepetition obligations, including employee wages and product warranties. The Debtor has determined that there is insufficient collateral to cover the interest portion of scheduled payments on its prepetition debt obligations. Contractual interest on those obligations amounts to $5,000, which is $2,000 in excess of reported interest expense; therefore, the debtor has discontinued accruing interest on these obligations. See Note X in Example 2 (paragraph 852-10-55-11) for a discussion of the credit arrangements entered into after the Chapter 11 filings.
852-10-55-4
This Example illustrates the fresh-start-related guidance in paragraphs
852-10-45-19 through 45-27
and uses the same hypothetical XYZ Company as in Example 1 (see paragraph 852-10-55-2). Illustrative accounting and associated note disclosures follow.
852-10-55-5
The Bankruptcy Court confirmed XYZ's plan of reorganization as of June 30, 19X2. It was determined that XYZ's reorganization value computed immediately before June 30, 19X2, the date of plan confirmation, was $1,300,000, which consisted of the following.
  • Cash in excess of normal operating requirements generated by operations " $150,000 " Net realizable value of asset dispositions " 75,000 " Present value of discounted cash flows of the emerging entity " 1,075,000 " Reorganization value " $1,300,000 "
852-10-55-6
XYZ Company adopted fresh-start reporting because holders of existing voting shares immediately before filing and confirmation of the plan received less than 50% of the voting shares of the emerging entity and its reorganization value is less than its postpetition liabilities and allowed claims, as shown in the following table.
  • Postpetition current liabilities " $300,000 " Liabilities deferred pursuant to Chapter 11 proceeding " 1,100,000 " Total postpetition liabilities and allowed claims " 1,400,000 " Reorganization value " (1,300,000)" Excess of liabilities over reorganization value " $100,000 "
852-10-55-7
The reorganization value of the XYZ Company was determined in consideration of several factors and by reliance on various valuation methods, including discounting cash flow and price/earnings and other applicable ratios. The factors considered by XYZ Company included all of the following:
  1. a
    Forecasted operating and cash flow results that gave effect to the estimated impact of both of the following:
    1. 1
      Corporate restructuring and other operating program changes
    2. 2
      Limitations on the use of available net operating loss carryovers and other tax attributes resulting from the plan of reorganization and other events.
  2. b
    The discounted residual value at the end of the forecast period based on the capitalized cash flows for the last year of that period
  3. c
    Market share and position
  4. d
    Competition and general economic considerations
  5. e
    Projected sales growth
  6. f
    Potential profitability
  7. g
    Seasonality and working capital requirements.
852-10-55-8
After consideration of XYZ Company's debt capacity and other capital structure considerations, such as industry norms, projected earnings to fixed charges, earnings before interest and taxes to interest, free cash flow to interest, and free cash flow to debt service and other applicable ratios, and after extensive negotiations among parties in interest, it was agreed that XYZ's reorganization capital structure should be as follows.
  • Postpetition current liabilities " $300,000 " Internal Revenue Service (IRS) note " 50,000 " Senior debt " 275,000 " (a) Subordinated debt " 175,000 " Common stock " 350,000 " Reorganization capital structure " $1,150,000 " (b) (a) "Due $50,000 per year for each of the next 4 years, at 12% interest, with $75,000 due in the fifth year." (b) See the table in paragraph 852-10-55-10 for the balance sheet adjustments required to reflect XYZ Company's reorganization value as of the date of plan confirmation.
852-10-55-9
The following entries record the provisions of the plan and the adoption of fresh-start reporting.
  • Entries to record debt discharge: Liabilities subject to compromise " $1,100,000 " Senior debt—current " $50,000 " Senior debt—long-term " 225,000 " IRS note " 50,000 " Cash " 150,000 " Subordinated debt " 175,000 " Common stock (new) " 86,000 " Additional paid-in capital " 215,000 " Gain on debt discharge " 149,000 " Entries to record exchange of stock for stock: Preferred stock " 325,000 " Common stock (old) " 75,000 " Common stock (new) " 14,000 " Additional paid-in capital " 386,000 " Entries to record the adoption of fresh-start reporting and to eliminate the deficit: Inventory " 50,000 " "Property, plant an equipment" " 175,000 " Reorganization value in excess of amounts allocable to identifiable assets " 175,000 " Gain on debt discharge " 149,000 " Additional paid-in capital " 351,000 " Goodwill " 200,000 " Deficit " 700,000 "
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10The following entries record the provisions of the plan and the adoption of fresh-start reporting.
  • Entries to record debt discharge: Liabilities subject to compromise " $1,100,000 " Senior debt—current " $50,000 " Senior debt—long-term " 225,000 " IRS note " 50,000 " Cash " 150,000 " Subordinated debt " 175,000 " Common stock (new) " 86,000 " Additional paid-in capital " 215,000 " Gain on debt discharge " 149,000 " Entries to record exchange of stock for stock: Preferred stock " 325,000 " Common stock (old) " 75,000 " Common stock (new) " 14,000 " Additional paid-in capital " 386,000 " Entries to record the adoption of fresh-start reporting and to eliminate the deficit: Inventory " 50,000 " "Property, plant, and equipment" " 175,000 " Goodwill (new) " 175,000 " Gain on debt discharge " 149,000 " Additional paid-in capital " 351,000 " Goodwill (old) " 200,000 " Deficit " 700,000 "
852-10-55-10
The effect of the plan of reorganization on XYZ Company's balance sheet, as of June 30, 19X2, is as follows.
  • Adjustments to Record Confirmation of Plan XYZ Company's Reorganized Balance Sheet Preconfirmation Debt discharge Exchange of stock Fresh start Assets: Current Assets Cash " $200,000 " " $(150,000)" " $50,000 " Receivables " 250,000 " " 250,000 " Inventory " 175,000 " " $50,000 " " 225,000 " "Assets to be disposed of valued at market, which is lower than cost" " 25,000 " " 25,000 " Other current assets " 25,000 " " 25,000 " " 675,000 " " (150,000)" " 50,000 " " 575,000 " "Property, plant, and equipment" " 175,000 " " 175,000 " " 350,000 " "Assets to be disposed of valued at market, which is lower than cost" " 50,000 " " 50,000 " Goodwill " 200,000 " " (200,000)" Reorganization value in excess of amounts allocable to identifiable assets " 175,000 " " 175,000 " " $1,100,000 " " $(150,000)" " $200,000 " " $1,150,000 " "Liabilities and Shareholders' Deficit:" Liabilities Not Subject to Compromise Current liabilities Short-term borrowings " $25,000 " " $25,000 " Current maturities of senior debt " $50,000 " " 50,000 " Accounts payable trade " 175,000 " " 175,000 " Other liabilities " 100,000 " " 100,000 " " 300,000 " " 50,000 " " 350,000 " Liabilities Subject to Compromise Prepetition liabilities " 1,100,000 " " (1,100,000)" IRS note " 50,000 " " 50,000 " "Senior debt, less current maturities" " 225,000 " " 225,000 " Subordinated debt " 175,000 " " 175,000 " Shareholders' deficit: Preferred stock " 325,000 " " $(325,000)" Additional paid-in capital " 215,000 " " 386,000 " " $(351,000)" " 250,000 " Common stock—old " 75,000 " " (75,000)" Common stock—new " 86,000 " " 14,000 " " 100,000 " Retained earnings (deficit) " (700,000)" " 149,000 " " 700,000 " " (149,000)" " (300,000)" " 450,000 " - " 200,000 " " 350,000 " " $1,100,000 " " $(150,000)" $- " $200,000 " " $1,150,000 "
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10The effect of the plan of reorganization on XYZ Company's balance sheet, as of June 30, 19X2, is as follows.
  • Adjustments to Record Confirmation of Plan XYZ Company's Reorganized Balance Sheet Preconfirmation Debt discharge Exchange of stock Fresh start Assets: Current Assets Cash " $200,000 " " $(150,000)" " $50,000 " Receivables " 250,000 " " 250,000 " Inventory " 175,000 " " $50,000 " " 225,000 " "Assets to be disposed of valued at market, which is lower than cost" " 25,000 " " 25,000 " Other current assets " 25,000 " " 25,000 " " 675,000 " " (150,000)" " 50,000 " " 575,000 " "Property, plant, and equipment" " 175,000 " " 175,000 " " 350,000 " "Assets to be disposed of valued at market, which is lower than cost" " 50,000 " " 50,000 " Goodwill—old " 200,000 " " (200,000)" Goodwill—new " 175,000 " " 175,000 " " $1,100,000 " " $(150,000)" " $200,000 " " $1,150,000 " "Liabilities and Shareholders' Deficit:" Liabilities Not Subject to Compromise Current liabilities Short-term borrowings " $25,000 " " $25,000 " Current maturities of senior debt " $50,000 " " 50,000 " Accounts payable trade " 175,000 " " 175,000 " Other liabilities " 100,000 " " 100,000 " " 300,000 " " 50,000 " " 350,000 " Liabilities Subject to Compromise Prepetition liabilities " 1,100,000 " " (1,100,000)" IRS note " 50,000 " " 50,000 " "Senior debt, less current maturities" " 225,000 " " 225,000 " Subordinated debt " 175,000 " " 175,000 " Shareholders' deficit: Preferred stock " 325,000 " " $(325,000)" Additional paid-in capital " 215,000 " " 386,000 " " $(351,000)" " 250,000 " Common stock—old " 75,000 " " (75,000)" Common stock—new " 86,000 " " 14,000 " " 100,000 " Retained earnings (deficit) " (700,000)" " 149,000 " " 700,000 " " (149,000)" " (300,000)" " 450,000 " - " 200,000 " " 350,000 " " $1,100,000 " " $(150,000)" $- " $200,000 " " $1,150,000 "
852-10-55-11
The following illustrative disclosure discusses the details of XYZ Company's confirmed plan of reorganization. In this illustration a tabular presentation entitled Plan of Reorganization Recovery Analysis is incorporated in the note disclosure. The plan of reorganization recovery analysis may alternatively be presented as supplementary information to the financial statements.
  • Note X - Plan of Reorganization
  • On June 30, 19X2, the Bankruptcy Court confirmed the Company's plan of reorganization. The Company accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are adjusted to fair value in accordance with accounting requirements for business combinations under ASC Topic 805. The excess of reorganization value over the fair value of tangible and intangible assets was recorded as "reorganization value in excess of amounts allocable to identifiable assets." The confirmed plan provided for the following:
    • Secured Debt—The Company's $300,000 of secured debt (secured by a first mortgage lien on a building located in Nashville, Tennessee) was exchanged for $150,000 in cash and a $150,000 secured note, payable in annual installments of $27,300 commencing on June 1, 19X3, through June 1, 19X6, with interest at 12% per annum, with the balance due on June 1, 19X7.
    • Priority Tax Claims—Payroll and withholding taxes of $50,000 are payable in equal annual installments commencing on July 1, 19X3, through July 1, 19X8, with interest at 11% per annum.
    • Senior Debt—The holders of approximately $275,000 of senior subordinated secured notes received the following instruments in exchange for their notes: $87,000 in new senior secured debt, payable in annual installments of $15,800 commencing March 1, 19X3, through March 1, 19X6, with interest at 12% per annum, secured by first liens on certain property, plants, and equipment, with the balance due on March 1, 19X7; $123,000 of subordinated debt with interest at 14% per annum due in equal annual installments commencing on October 1, 19X3, through October 1, 19X9, secured by second liens on certain property, plant, and equipment; and 11.4% of the new issue of outstanding voting common stock of the Company.
    • Trade and Other Miscellaneous Claims—The holders of approximately $225,000 of trade and other miscellaneous claims received the following for their claims: $38,000 in senior secured debt, payable in annual installments of $6,900 commencing March 1, 19X3, through March 1, 19X6, with interest at 12% per annum, secured by first liens on certain property, plants, and equipment, with the balance due on March 1, 19X7; $52,000 of subordinated debt, payable in equal annual installments commencing October 1, 19X3, through October 1, 19X8, with interest at 14% per annum; and 25.7% of the new issue of outstanding voting common stock of the Company.
    • Subordinated Debentures—The holders of approximately $250,000 of subordinated unsecured debt received, in exchange for the debentures, 48.9% of the new issue outstanding voting common stock of the Company.
    • Preferred Stock—The holders of 3,250 shares of preferred stock received 12% of the outstanding voting common stock of the new issue of the Company in exchange for their preferred stock.
    • Common Stock—The holders of approximately 75,000 outstanding shares of the Company's existing common stock received, in exchange for their shares, 2% of the new outstanding voting common stock of the Company.
  • The following table (Plan of Reorganization Recovery Analysis) summarizes the adjustments required to record the reorganization and the issuance of the various securities in connection with the implementation of the plan.
    • Recovery "Elimination of Debt and Equity" Surviving Debt Senior Debt Subordinated Debt Common Stock (a) Total Recovery Cash IRS Note % Value $ % Postpetition liabilities " $300,000 " " $300,000 " " $300,000 " 100% Claim or Interest Secured debt " 300,000 " " $150,000 " " $150,000 " " 300,000 " 100 Priority tax claim " 50,000 " " $50,000 " " 50,000 " 100 Senior debt " 275,000 " " $(25,000)" " 87,000 " " $123,000 " 11.4% " $40,000 " " 250,000 " 91 Trade and other miscellaneous claims " 225,000 " " (45,000)" " 38,000 " " 52,000 " 25.7 " 90,000 " " 180,000 " 80 Subordinated debentures " 250,000 " " (79,000)" 48.9 " 171,000 " " 171,000 " 68 " 1,100,000 " Preferred stockholders " 325,000 " " (283,000)" 12.0 " 42,000 " " 42,000 " Common stockholders " 75,000 " " (68,000)" 2.0 " 7,000 " " 7,000 " Deficit " (700,000)" " 700,000 " Total " $1,100,000 " " $200,000 " " $300,000 " " $150,000 " " $50,000 " " $275,000 " " $175,000 " 100.0% " $350,000 " " $1,300,000 " (a) "The aggregate par value of the common stock issued under the plan is $100,000."
Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance:
105-10-65-10The following illustrative disclosure discusses the details of XYZ Company's confirmed plan of reorganization. In this illustration a tabular presentation entitled Plan of Reorganization Recovery Analysis is incorporated in the note disclosure. The plan of reorganization recovery analysis may alternatively be presented as supplementary information to the financial statements.
  • Note X - Plan of Reorganization
  • On June 30, 19X2, the Bankruptcy Court confirmed the Company's plan of reorganization. The Company accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are adjusted to fair value in accordance with accounting requirements for business combinations under ASC Topic 805. The excess of reorganization value over the fair value of tangible and intangible assets was recorded as “Goodwill (new)." The confirmed plan provided for the following:
    • Secured Debt—The Company's $300,000 of secured debt (secured by a first mortgage lien on a building located in Nashville, Tennessee) was exchanged for $150,000 in cash and a $150,000 secured note, payable in annual installments of $27,300 commencing on June 1, 19X3, through June 1, 19X6, with interest at 12% per annum, with the balance due on June 1, 19X7.
    • Priority Tax Claims—Payroll and withholding taxes of $50,000 are payable in equal annual installments commencing on July 1, 19X3, through July 1, 19X8, with interest at 11% per annum.
    • Senior Debt—The holders of approximately $275,000 of senior subordinated secured notes received the following instruments in exchange for their notes: $87,000 in new senior secured debt, payable in annual installments of $15,800 commencing March 1, 19X3, through March 1, 19X6, with interest at 12% per annum, secured by first liens on certain property, plants, and equipment, with the balance due on March 1, 19X7; $123,000 of subordinated debt with interest at 14% per annum due in equal annual installments commencing on October 1, 19X3, through October 1, 19X9, secured by second liens on certain property, plant, and equipment; and 11.4% of the new issue of outstanding voting common stock of the Company.
    • Trade and Other Miscellaneous Claims—The holders of approximately $225,000 of trade and other miscellaneous claims received the following for their claims: $38,000 in senior secured debt, payable in annual installments of $6,900 commencing March 1, 19X3, through March 1, 19X6, with interest at 12% per annum, secured by first liens on certain property, plants, and equipment, with the balance due on March 1, 19X7; $52,000 of subordinated debt, payable in equal annual installments commencing October 1, 19X3, through October 1, 19X8, with interest at 14% per annum; and 25.7% of the new issue of outstanding voting common stock of the Company.
    • Subordinated Debentures—The holders of approximately $250,000 of subordinated unsecured debt received, in exchange for the debentures, 48.9% of the new issue outstanding voting common stock of the Company.
    • Preferred Stock—The holders of 3,250 shares of preferred stock received 12% of the outstanding voting common stock of the new issue of the Company in exchange for their preferred stock.
    • Common Stock—The holders of approximately 75,000 outstanding shares of the Company's existing common stock received, in exchange for their shares, 2% of the new outstanding voting common stock of the Company.
  • The following table (Plan of Reorganization Recovery Analysis) summarizes the adjustments required to record the reorganization and the issuance of the various securities in connection with the implementation of the plan.
    • Recovery "Elimination of Debt and Equity" Surviving Debt Senior Debt Subordinated Debt Common Stock (a) Total Recovery Cash IRS Note % Value $ % Postpetition liabilities " $300,000 " " $300,000 " " $300,000 " 100% Claim or Interest Secured debt " 300,000 " " $150,000 " " $150,000 " " 300,000 " 100 Priority tax claim " 50,000 " " $50,000 " " 50,000 " 100 Senior debt " 275,000 " " $(25,000)" " 87,000 " " $123,000 " 11.4% " $40,000 " " 250,000 " 91 Trade and other miscellaneous claims " 225,000 " " (45,000)" " 38,000 " " 52,000 " 25.7 " 90,000 " " 180,000 " 80 Subordinated debentures " 250,000 " " (79,000)" 48.9 " 171,000 " " 171,000 " 68 " 1,100,000 " Preferred stockholders " 325,000 " " (283,000)" 12.0 " 42,000 " " 42,000 " Common stockholders " 75,000 " " (68,000)" 2.0 " 7,000 " " 7,000 " Deficit " (700,000)" " 700,000 " Total " $1,100,000 " " $200,000 " " $300,000 " " $150,000 " " $50,000 " " $275,000 " " $175,000 " 100.0% " $350,000 " " $1,300,000 " (a) "The aggregate par value of the common stock issued under the plan is $100,000."

852-10-60Relationships

Source downloaded: .Record version d2f464834464. Effective date must be checked in the source.

Financial Services—Depository and Lending

852-10-60-1
For the required financial statement reporting of a liquidating bank, see Subtopic 205-30.

Related subtopics