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The statement of operations of a reporting entity in bankruptcy will reflect changes due to the evolution of the bankruptcy process according to ASC 852-10-45-9. Items related to the bankruptcy should be presented separately in the financial statements. ASC 852-10-45-9 states:

ASC 852-10-45-9

The statement of operations shall portray the results of operations of the reporting entity while it is in Chapter 11. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business shall be reported separately as reorganization items, except for those required to be reported as discontinued operations in conformity with Subtopic 205-20.

Figure BLG 3-5 illustrates a sample statement of operations for a reporting entity which has gone into bankruptcy.
Figure BLG 3-5
Example statement of operations under ASC 852-10
As illustrated in the example statement of operations above, transactions and events that are directly associated with the reorganization are presented separately from the ongoing operations of J&B industries.

3.10.1 Reorganization items during bankruptcy

The primary method of distinguishing transactions and events associated with the reorganization on the statement of operations is through the use of a separate line for reorganization items. The reporting entity uses this category to reflect the revenues, expenses, gains, and losses that are the result of the reorganization of the business during the bankruptcy. However, it would be rare to report revenues as a reorganization item. Adjustments relating to prepetition estimates of liabilities, or the correction of errors, would not typically be recorded to reorganization items. No activity should be classified as a reorganization item before the bankruptcy filing or after bankruptcy emergence, even if the activity relates to the bankruptcy. Items are only classified in reorganization items during bankruptcy if they result from the reorganization of the business.
Judgment is required in determining which statement of operations items should be reported as reorganization items. As a general rule, only incremental costs directly related to the reporting entity's bankruptcy filing, such as professional fees for bankruptcy services, should be presented as a reorganization item. Recurring internal costs of normal operations should not be presented as reorganization items. Related tax effects from reorganization items should be reflected in income tax expense. In addition, changes in the balance sheet accounts from the application of the principles of ASC 852-10, such as adjustments to the expected amount of the allowed claims for liabilities subject to compromise discussed earlier, should be recorded as reorganization items.
Impairment charges and restructuring activities would not usually be considered reorganization items because these costs are associated with the ongoing operations of the business. Only those costs initiated directly as a result of the bankruptcy filing and which would not have otherwise been incurred by the reporting entity may be presented as reorganization items. For example, a debtor may reject a lease during bankruptcy as part of a broad restructuring plan to exit an unprofitable region or product offering. It may not be appropriate to classify the gain or loss related to the lease termination as a reorganization item. The debtor would have to assess whether it would have exited the unprofitable region or product offering regardless of the bankruptcy. If the bankruptcy filing was not the direct cause of the impairment charge or the restructuring activity, then the activity should generally not be recorded as a reorganization item.
Reorganization activities associated with a component that is required to be reported as discontinued operations under ASC 205, Presentation of Financial Statements, should be separately reported as reorganization items within the discontinued operations section of the statement of operations.
For disposal transactions that qualify as discontinued operations, the gain or loss associated with the sale of assets, and the related selling costs, would be recorded as discontinued operations. For disposal transactions that do not qualify as discontinued operations, a question may arise as to how a reporting entity should classify the gain or loss associated with the sale of assets, and the related selling costs, which are completed as part of a Court approved plan of reorganization. It is generally expected that disposal gains or losses, and the related selling costs, would be recognized as part of ongoing operations. However, such amounts may be included as a reorganization item when the reporting entity is able to demonstrate that the asset is being sold only as a direct result of its bankruptcy proceedings as required by a Court approved plan, and would not have otherwise been disposed of in the ordinary course of business.
In accordance with ASC 852-10-45-12, interest income earned by a reporting entity in bankruptcy that would not have been earned except for the proceedings, which often occurs because the debtor is not allowed to pay prepetition debts during the proceedings, should be reported within reorganization items.
Figure BLG 3-6 provides an example of a footnote disclosure for reorganization items for a reporting entity in bankruptcy.
Figure BLG 3-6
Example note disclosure (abridged) – Reorganization items
Professional advisory fees and other costs directly associated with our reorganization are reported separately as reorganization items pursuant to ASC 852-10. Professional fees include legal and other advisory fees related to the bankruptcy proceedings. Reorganization items also include provisions and adjustments to reflect the carrying value of certain prepetition liabilities at their Court-approved settlement amounts. The reorganization items in the Consolidated Statement of Operations for the year ended December 31, 20X1, consisted of the following items:
Year ended December 31, 20X1
Professional fees
$
55
Debt valuation adjustments
0
Adjustments of other claims
15
Interest income
(10)
Total reorganization items, net
$
65

3.10.2 Interest expense during bankruptcy

The Bankruptcy Code specifically limits postpetition interest on unsecured debt, but allows claims for postpetition interest on secured debt in certain instances. Interest accruing on unsecured debt subsequent to the date of petition generally will not be allowed as a claim unless there is surplus (a solvent debtor) and all unsecured creditors will receive full payment for their claims. Interest accruing on secured debt is allowed when the collateral securing the claims exceeds the principal amount of the debt and any accruing interest is secured.
ASC 852-10-45-11 provides guidance regarding reporting interest expense during bankruptcy.

ASC 852-10-45-11

Interest expense shall be reported only to the extent that it will be paid during the proceeding or that it is probable that it will be an allowed priority, secured, or unsecured claim. Interest expense is not a reorganization item.

Creditors also may be allowed to add reasonable fees, costs, and other charges incurred in connection with the bankruptcy proceedings to their claims, which could require the debtor to adjust the carrying amount of the claims in its financial statements.
Since some of a reporting entity's interest cost likely will not be accruing during the bankruptcy proceedings, this could have a significant impact on the results of operations because of lower interest expense being reflected in the current financial statements as compared to prior periods. Therefore, the contractual interest that would have accrued absent the bankruptcy filing should be disclosed in the notes to the financial statements or on the face of the statement of operations. Interest expense that will be accrued during the bankruptcy proceedings, including interest related to debtor-in-possession financing, is not included in reorganization items.
In certain circumstances, the Court may approve for the debtor to make adequate protection payments to its creditor. Adequate protection payments are intended to provide a secured (or partially secured) creditor consideration during the bankruptcy proceedings to compensate it from the loss in value of the collateralized asset the debtor continues to use in its operations. For example, the debtor may have a loan with a creditor which is secured by a manufacturing facility. Because the debtor will continue to operate the manufacturing facility during the bankruptcy proceedings, thereby precluding the creditor from accessing the collateral to minimize its losses as a creditor, the Court may approve adequate protection payments to compensate for the potential loss in value of the collateral due to the debtor's continued use of the facility. Given the nature of the payment, adequate protection payments are generally treated as a reduction in principal. However, the debtor should consider whether some or all of the payments should be treated as interest.
Question BLG 3-6 discusses if an entity can continue to capitalize interest during bankruptcy if interest expense is no longer being recognized on the related debt.
Question BLG 3-6
May a reporting entity that has filed for bankruptcy continue to capitalize interest related to an active construction project if interest expense is no longer being recognized on the project debt?
PwC response
No. Unless interest on the project debt is being incurred in bankruptcy, capitalization would not be appropriate.
Question BLG 3-7 illustrates how a reporting entity should account for equity instruments with characteristics of debt during bankruptcy.
Question BLG 3-7
How should a reporting entity in bankruptcy treat dividends on mandatorily redeemable preferred stock that is classified as mezzanine equity?
PwC response
While ASC 852 specifically addresses accounting for interest expense in a reorganization proceeding, it does not address the accounting for equity instruments with characteristics of debt such as mandatorily redeemable preferred stock. The debtor should carefully consider the terms of each of its equity instruments, including any modifications made to the instruments by the Court, to ensure an appropriate accounting model is being followed.
In cases where it is not expected that the Court will allow a claim for future dividends after filing for bankruptcy, we believe it is acceptable to analogize to ASC 852-10-45-11 (which addresses interest expense in a reorganization proceeding). Under this approach, the reporting entity would cease accrual of such preferred stock dividends as of the bankruptcy filing date, if the criteria in ASC 852-10-45-11 are met.

1The example note illustrates an abridged version of what a reporting entity in bankruptcy would disclose for reorganization items. The example is not meant to be an all-inclusive representation of what information would need to be disclosed in the note. A reporting entity should carefully consider the specific facts and circumstances surrounding its reorganization items and disclose accordingly.

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