On January 2 20X2 Hobbes Company files a petition for
On January 2, 20X2, Hobbes Company files a petition for relief under Chapter 11 of the Bankruptcy Code. Hobbes had disastrous operating performance during the recent recession and needs time to reestablish profitable operations. The trial balance on January 2, 20X2, follows:

The following information applies to the 20X2 fiscal year ending December 31, 20X2. Hobbes is in reorganization proceedings for the entire year, and the plan of reorganization has not been approved as of December 31, 20X2. The debtor retained possession of the company during the year.

Income Data for 20X2
1. Sales revenue of $246,000 is generated during the year.
2. Cost of goods sold is $170,000 as a result of cost reduction programs implemented during the year.
3. Selling, operating, and administrative expenses are $50,000 for the year.
4. Interest expense is $4,000. Contractual interest would have been $51,000 for the year.
5. Reorganization items include $15,000 in fees paid to professionals and $3,000 of interest earned on cash accumulated as a result of the Chapter 11 proceedings.
6. The income tax of $5,000 on operating income was paid during the year.
7. Discontinued operations included a $16,000 loss on operations, net of tax, and a $9,000 gain on the sale of assets, net of tax. The bankruptcy court administered the sale of the assets under the Chapter 11 proceedings.

Cash Flow Data for 20X2
1. A total of $264,000 is received from customers. This includes $18,000 received on the accounts receivable that were outstanding prior to filing the petition.
2. A total of $206,000 is paid to suppliers, employees, and others for operations.
3. The current interest expense of $4,000 on postpetition debt is paid during the year.
4. Professional fees of $15,000 are paid, and interest on cash accumulations of $3,000 is received.
5. Net cash used by discontinued operations, excluding the sale of assets, is $3,000.
6. The proceeds from the sale of the discontinued assets is $18,000. The bankruptcy court administered this sale.
7. Hobbes borrowed $10,000 in short-term debt as part of a financing plan administered by the court.
8. The court authorized a payment of $10,000 on the bonds payable. The ending cash balance of $72,000 represents an increase of $57,000 during the year.

Other Data for 20X2
1. Careful working capital management reduced the ending inventory to $88,000. Continued reduction is expected in 20X3.
2. The property, plant, and equipment, net of accumulated depreciation, at the end of 20X2 totaled $460,000.
3. In addition to the $10,000 short-term borrowings that are part of the court-approved financing plan, Hobbes has postpetition accounts payable of $7,000.

a. Prepare the income statement for Hobbes for the year ending December 31, 20X2.
b. Prepare the statement of cash flows for the company for the year ending December 31, 20X2.
c. Prepare the balance sheet for the company as of December 31,20X2.
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