Chapter Thirteen Accounting for Legal Reorganizations and Liquidations Bankruptcy vinsolvent: unable to pay debts when due vbankruptcy – a structured process to protect all parties v9 of 12 largest bankruptcies since 2001 vvoluntary or involuntary vliquidation (Chapter 7) or reorganization (Chapter 11)

Types of Liabilities vfully secured: net realizable value of collateral exceeds the debt vpartially secured with some collateral vunsecured liabilities with priority vclaims for administrative expenses vobligations arising after petition is filed and before order of relief is issued vsome employee wages & benefits vsome customer deposits vclaims for unpaid taxes

Land & Bldg Less: N/P – long term Pledged w/ Partially Sec: Estimated deficiency Total Equipment Free Assets: Inventory Total avail to pay liabilities Less: Liabilities w/ priority Assets Book Values Avail for Unsecured Pledged w/ Fully Securd: Less: N/P – current Available for unsecured A/R Cash

Admin. expenses Taxes payable Fully Secured Creditors: Stockholders’ equity Total N/P – long term Partially Secured Creditors Unsecured Creditors A/P (other than salaries Liabilities & Stck Equity Book Values Unsecur Nonpriority Liabilities w/ Priority Less: Land and Buildings Less: Equipment N/P - current Salaries payable Total

vinterim trustee / permanent trustee vcommittee of unsecured creditors vgeneral reporting rules Statement of Realization and Liquidation vaccount balances at filing date of order of relief vshown horizontally by major category vcash receipts and disbursements vadjustments and write-offs LIQUIDATION – CHAPTER 7 BANKRUPTCY

Book Bal 3/14 $ 1$ 194$ 6$ 150$ 37$ 70$ (68) Cash Non-C Assets Liab w/prior Fully Secrd Part Secrd Unscd Liab S/E A/R collected Invent sold A/P discover Lnd, Bld sold Note paid Equip sold Pymnt on dbt Invst sold Admin exp Partly secrd reclassified Final balanc Prob 13-46

vto salvage the company vcontrol normally retained by the ownership va plan for reorganization vapproved by creditors and stockholders Financial Statements During Reorganization vgains, losses, income, & expenses from reorganization reported separately vhistorical cost but not current/non-current vdistinguish liabilities that are not subject to compromise from those that are REORGANIZATION – CHAPTER 11 BANKRUPTCY

Financial Reporting for Companies Emerging from Reorganization vfresh start accounting if: vassets are less than claims voriginal owners have less than 50% of voting stock vreorganization value approximates fair value vgoodwill can be recognized vliabilities reported at present value of future cash payments