HOMEWORK ON QUASI-REORGANIZATION
Problem 1 – Revaluation and Reduction of par
Noland Corp. is under protection of the bankruptcy court and has the following account balances at June
30, 2020:
Cash P 15,000 Accounts payable P
450,000
Accounts receivable 320,000 Notes payable 605,000
Inventory 450,000 Taxes and wages 60,000
Equipment 840,000 Mortgage payable 150,000
Accumulated depreciation (525,000) Ordinary shares (P1 par) 50,000
Intangible assets 80,000 Retained earnings (135,000)
Total 1,180,000 Total 1,180,000
The court has accepted the following proposed settlement of the company’s affairs. The following assets
are to be written down by the following amounts:
Accounts P 40,000
receivable
Inventory 160,000
Intangible assets 80,000
The trade creditors (accounts payable) will reduce their claim by 30%, will accept one-year notes for
50%, and retain their current claim for the remaining 20%. The tax, wage and mortgage claims will
remain unchanged. The current ordinary shares will be surrendered to the corporation and cancelled. In
consideration thereof, the current shareholders shall receive new shares having a par value of P0.50.
The current holder of the note payable shall receive 1,000 of the new ordinary shares in full satisfaction
of the note payable.
Required: Prepare the journal entries. Prepare Noland’s statement of financial position after the quasi-
reorganization.
Problem 2 – Par to No-par value shares
The shareholders’ equity of Settle Corp. on June 30, 2020 was as follows:
5%, P50 par Preference shares P1,500,000
Ordinary shares, P30 par 3,000,000
Deficit from operations (600,000)
Total shareholders’ equity 3,900,000
Other information: the preference shares are cumulative and dividends are in arrears for 5 year as of
June 30, 2020.
On July 1, the following actions were taken:
a. Ordinary shareholders tuned in their old ordinary shares and received in exchange new ordinary
shares, one share of the new share being exchanged for every four shares of the old. New ordinary
share was given a stated value of P60 per share.
b. One half share of the new ordinary share was issued on each share of preference share outstanding
in liquidation of dividends in arrears on preference share.
c. The deficit from operations was applied against the share premium arising from the ordinary share
restatement.
Transactions for the remainder of 2020 affecting the shareholders’ equity were as follows:
a. On Oct. 1, 10,000 preference shares were called at P55 plus total dividends of P6,250. The shares
were formally retired.
b. On Nov. 10, 60,000 new ordinary shares were sold at P65.
c. Net income for the 6 months ended on this date, was P1,500,000. The semi-annual dividend was
declared on preference shares, and a P0.75 dividend was declared on ordinary shares, dividends
being payable January 2, 2021.
Required: Prepare the journal entries. Prepare Settle’s partial statement of financial position
(shareholders’ equity) after the quasi-reorganization.
Problem 3 – Reduction of par
The shareholders’ equity of Cumbersome, Inc.’s December 31, 2020 statement of financial position
consisted of the following account balances:
Ordinary shares, P50 par P 5,000,000
Share premium 3,000,000
Retained earnings (4,000,000)
On January 2, 2021, the company put into effect a shareholder-approved quasi-reorganization by
reducing the par value of the shares to P25 and eliminating the deficit against share premium.
Immediately after the quasi-reorganization, what amount should the company report as share premium in
its statement of financial position?
Problem 4 - Revaluation
No Luck Company has incurred losses from operations for many years. At the recommendation of the
newly-hired presidents, the board of directors voted to implement a quasi-reorganization on January 1,
2020. No Luck’s condensed statement of financial position is shown below:
ASSETS LIABILITIES AND EQUITY
Current assets 2,750,000 Total liabilities 3,000,000
PPE 6,750,000 Ordinary shares, P10 par 8,000,000
Other assets 1,000,000 Share premium 1,500,000
Retained earnings (2,000,000)
Total 10,500,000 Total 10,500,000
The shareholders approved the quasi-reorganization effective January 1, 2020, to be accomplished by a
reduction in other assets of P750,000, and increasing the carrying amount of the PPE to P10,125,000.
After the quasi-reorganization, determine the balances of the following:
1. Revaluation surplus
2. Total assets
3. Total shareholders’ equity
August 2020
