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
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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.![](\"/asc-img/GUID-57CE05EF-CD69-4F6B-AB7E-600265574C2C-low.gif\")
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.![](\"/asc-img/GUID-A4F01AFA-AA43-4469-8DDF-3A86AC2340A7-low.gif\")
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.
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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.
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