Lop filed for relief under Chapter 11 of the bankruptcy act on January 2, 2016. A summary of Lop's assets and equities on this date, and at June 30, 2016, follows. Estimated fair values of Lop's assets at June 30 are also shown.

The parties in interest agree to a reorganization plan on July 1, 2016, and a hearing to confirm that the plan is fair and equitable is scheduled for July 8. Under the reorganization plan, the reorganization value is set at $16,000, and the debt and equity holders will receive value as follows:

The reorganization plan is confirmed on July 8, 2016, under the new name of Hip. There are no asset or liability changes between July 1 and July 8.
REQUIRED
1. Is the reorganization of Lop eligible for fresh-start accounting? Show calculations.
2. Prepare journal entries to adjust Lop's accounts for the reorganization plan.
3. Prepare a fresh-start balance sheet for Hip as of July 8, 2016.

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January 2, 2016 June 30, 2016 Estimated Fair Value Per Books Per Books Assets Cash Trade receivables-net Inventories Prepaid items Land Buildings-net Equipment-net Patent $200 800 2,000 500 1,000 3,000 2,000 4,500 $14,000 $6,700 1,000 1,600 $6,700 1,000 2,000 1,000 2,900 1,800 4,000 $19,000 2,000 1,500 1,800 0 $15,000 Equities Accounts payable Wages payable Bank note payable (includes $500 $1,000 500 5,000 $3,000 1,000 interest) Long-term note payable (secured with 6,000 equipment) Prepetition liabilities allowed Common stock Deficit 7,000 (5,500) $14,000 12,500 7,000 (4,500) $19,000 To Receive Cash Consideration To Receive Noncash Consideration Postpetition Claims Accounts payable (in full) Wages payable (in full) $3,000 1,000 Prepetition Claims Accounts payable (80%) Wages payable (80%) Bank note payable and 800 400 $2,000 note payable interest (80%) 2,000 common stock Long-term note payable (80%) 1,800 note payable 3,000 common stock 2,000 common stock Common stockholders* $5,200 $10,800