Lowstep Corporation filed for relief under Chapter 11 of the bankruptcy act on January 2, 2011. A summary of Lowstep's assets and equities on this date, and at June 30, 2011, follows. Estimated fair values of Lowstep's assets at June 30 are also shown.

The parties in interest agree to a reorganization plan on July 1, 2011, 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, 2011, under the new name of Highstep Corporation. There are no asset or liability changes between July 1 and July 8.REQUIRED1. Is the reorganization of Lowstep eligible for fresh-start accounting? Show calculations.2. Prepare journal entries to adjust Lowstep's accounts for the reorganization plan.3. Prepare a fresh-start balance sheet as of July 8,2011.

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January 2, 2011 June 30, 2011 Estimated Per Books Per Books Fair Value Assets $ 200 $ 6,700 1,000 1,600 $ 6,700 1,000 Cash Trade receivables--net 800 Inventories 2,000 500 1,000 3,000 2,000 2,000 Prepaid items Land Buildings-net Equipment-net Patent 1,000 2.000 2,900 1,800 1,500 1,800 4,500 $14.000 4,000 $19,000 $15,000 Equities Accounts payable Wages payable Bank note payable (includes $500 interest) Long-term note payable (secured with equipment) Prepetition liabilities allowed Common stock Deficit $ 3.000 $ 1,000 500 1,000 5,000 6,000 12,500 7,000 (4.500) $19,000 7,000 (5,500) $14,000