Hal Company filed for protection from creditors under Chapter 11 of the bankruptcy act on July 1, 2016. Hal had the following liabilities at the time of filing:
1. The December 31, 2016, balance sheet will show prepetition liabilities of:
a $340,000 (the claims at filing)
b $240,000 (the original claims less the secured portion of the mortgage bonds)
c $350,000 (the original claims plus six months’ interest on the bonds)
d $290,000 (the original claims less the priority tax claims)
2. Two-and-a-half years after filing the petition for bankruptcy, Hal’s management, its creditors, the equity holders, and other parties in interest agree on a reorganization value of $500,000. Which of the following statements is most likely?
a The reorganization value approximates the appraised value of the firm as a going concern less the prepetition liabilities.
b The reorganization value approximates the fair value of the assets less the fair value of the prepetition and postpetition liabilities.
c The reorganization value approximates the fair value of the assets less the book value of the postpetition liabilities and the estimated settlement value of the prepetition liabilities.
d The reorganization value approximates the fair value of the entity without considering the liabilities.