# ASC 852-10-55: Reorganizations — Overall — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/852/10/#55-implementation-guidance-and-illustrations)

Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.

Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure.

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:9e749e4676c3957e657fcb5a7f2c21cfc32a8e2eda7519b916fab60e70d409b8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 852-10-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/852/10/#55-implementation-guidance-and-illustrations)

SEC content: no

##### [852-10-55-1](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:740df714358240b92b41b9aad9695c86e36f377a24a610007c675184056d527e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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](https://asc.understandingaccounting.org/glossary/b/#bankruptcy-code "A federal statute, enacted October 1, 1979, as title 11 of the United States Code by the Bankruptcy Reform Act of 1978, that applies to all cases filed on or after its enactment and that provides the basis for the current federal bankruptcy system."). 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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-2)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:528b4b1966e0ff9ff19e95768019f5c82d4374088e8ca2126589a2e4e5ed4679

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Example illustrates the guidance in paragraphs

[852-10-45-1 through 45-13](https://asc.understandingaccounting.org/asc/852/10/#852-10-45-1)

and

[852-10-50-2 through 50-3](https://asc.understandingaccounting.org/asc/852/10/#852-10-50-2)

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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-3)

Pending content: yes

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:1f72297c5362ae4a0eb327be380c49e2bb41baccf51dc48b035665066a8d1d37

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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](https://asc.understandingaccounting.org/glossary/p/#petition "A document filed in a court of bankruptcy, initiating proceedings under the Bankruptcy Code.") 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
    
-   ![](https://asc.understandingaccounting.org/asc-img/GUID-CE6E1D02-E98F-4555-9396-4CF95282FD22-low.gif)
    
    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.
    
-   ![](https://asc.understandingaccounting.org/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.
    
-   ![](https://asc.understandingaccounting.org/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](https://asc.understandingaccounting.org/asc/852/10/#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:

[105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)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](https://asc.understandingaccounting.org/glossary/p/#petition "A document filed in a court of bankruptcy, initiating proceedings under the Bankruptcy Code.") 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
    
-   ![](https://asc.understandingaccounting.org/asc-img/GUID-CE6E1D02-E98F-4555-9396-4CF95282FD22-low.gif)
    
    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.
    
-   ![](https://asc.understandingaccounting.org/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.
    
-   ![](https://asc.understandingaccounting.org/asc-img/GUID-B9C5A640-DED9-4CA2-8978-6B7A29BF9B58-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 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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-11)) for a discussion of the credit arrangements entered into after the Chapter 11 filings.

##### [852-10-55-4](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-4)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:33692b30462d6468de5a551f343d174ba2e3eb9ce8035545176fba07f0eb2833

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the fresh-start-related guidance in paragraphs

[852-10-45-19 through 45-27](https://asc.understandingaccounting.org/asc/852/10/#852-10-45-19)

and uses the same hypothetical XYZ Company as in Example 1 (see paragraph [852-10-55-2](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-2)). Illustrative accounting and associated note disclosures follow.

##### [852-10-55-5](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-5)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:51693b96eb963bc41bb3c24df1fb1d6bae8651b657159779b3762ba094c54dbc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-31107C57-9EFB-498F-955F-204148424F4F-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-6)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:89089ce1bd822bbe7efe5e2a04abab60e63b612e11d0f0d7d29cfe06cdfb66a6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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](https://asc.understandingaccounting.org/glossary/a/#allowed-claim "The amount allowed by the Bankruptcy Court as a claim against the estate. This amount may differ from the actual settlement amount."), as shown in the following table.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-AC1B4CC4-0E30-487B-A3C7-09907D7F6468-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-7)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:2736f9a6b9858bb5eec3a34ceaa73bfc357bb31e161b319bf8b197773e13d389

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-8)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:a63039fe5cbaab9c6c266de88069eba904901de988d04296d547f0b831e34776

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


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.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-6C681657-8AF1-48C4-A7AB-78FECC644101-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-9)

Pending content: yes

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:0a84831a6f11729a290cb88bf4d79c57bce17a6cb71158149b1bccb82fec278c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following entries record the provisions of the plan and the adoption of fresh-start reporting.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-EE559453-A486-4AA8-8C5A-D731A8049509-low.gif)
    
    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:

[105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)The following entries record the provisions of the plan and the adoption of fresh-start reporting.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-D765E72D-825D-453E-ADB4-A46E7CEAA518-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-10)

Pending content: yes

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:1e835513329fb51a3a6a674b9302c271ad3aaca975c693e680a944fb7a80ad2b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The effect of the plan of reorganization on XYZ Company's balance sheet, as of June 30, 19X2, is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-B4554DDA-514C-4791-A606-2BBA9DEA7A73-low.gif)
    
    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:

[105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)The effect of the plan of reorganization on XYZ Company's balance sheet, as of June 30, 19X2, is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-1B9DB7CE-737A-4223-A2F2-DF80E65F6E54-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/852/10/#852-10-55-11)

Pending content: yes

Source downloaded (UTC): 2026-09-10T02:03:19.355Z to 2026-09-10T02:03:19.355Z

Record version: sha256:28fd471363fa89757d6f045fcf97f7e59cade8007d13cc626812b6288cd6925d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following illustrative disclosure discusses the details of XYZ Company's [confirmed plan](https://asc.understandingaccounting.org/glossary/c/#confirmed-plan "An official approval by the court of a plan of reorganization under a Chapter 11 proceeding that makes the plan binding on the debtors and creditors. Before a plan is confirmed, it must satisfy 11 requirements in section 1129(a) of the Bankruptcy Code.") 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.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-C886CE2F-00ED-4A43-A61E-06B4682A8758-low.gif)
        
        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:

[105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)The following illustrative disclosure discusses the details of XYZ Company's [confirmed plan](https://asc.understandingaccounting.org/glossary/c/#confirmed-plan "An official approval by the court of a plan of reorganization under a Chapter 11 proceeding that makes the plan binding on the debtors and creditors. Before a plan is confirmed, it must satisfy 11 requirements in section 1129(a) of the Bankruptcy Code.") 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.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-C886CE2F-00ED-4A43-A61E-06B4682A8758-low.gif)
        
        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."