Question

How does the going concern concept, consistency concept and accrual concept apply to the bankruptcy of JC Penny due to the recent pandemic, COVID-19?

Answer 1

The Coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country. As a result, the American retail industry has experienced a profoundly different new reality, requiring JCPenney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company," CEO Jill Soltau said in a statement.

"Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy – and our efforts had already begun to pay off," Soltau's statement said. "While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt.

Food & Beverage is one of the few industries that has seen its average PD go down during the crisis due to the “essential” nature of the firms in this industry. Risk levels for the Hotels & Restaurants sector more than doubled as their occupancy rates were close to zero because of the lockdown. Consumer product retailers and wholesalers were already facing elevated credit risk due to high rentals, high debt levels, and erosion of market share to online resellers. Another downside surprise, such as a delay in reopening shops, would push more of these firms into default.