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    Quiz Reorganization

    Uploaded by

    Jam Surdivilla
    The document contains information about debt restructuring transactions for several companies. For the first transaction, the entity settled a $4 million mortgage and $300,000 in accrued interest by issuing 35,000 shares worth $4.5 million. Depending on whether the fair value, carrying amount, or liability value is used, the entry will include a gain/loss on restructuring and adjustments to share capital and premium. For the second transaction, a bank agreed to reduce debt from $8 million to $7 million, forgive accrued interest of $540,000, and extend maturity with 10% annual interest. The gain on restructuring is $1,290,590. For the third transaction,

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    © All Rights Reserved
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    Quiz Reorganization

    Uploaded by

    Jam Surdivilla
    317 views7 pages
    The document contains information about debt restructuring transactions for several companies. For the first transaction, the entity settled a $4 million mortgage and $300,000 in accrued interest by issuing 35,000 shares worth $4.5 million. Depending on whether the fair value, carrying amount, or liability value is used, the entry will include a gain/loss on restructuring and adjustments to share capital and premium. For the second transaction, a bank agreed to reduce debt from $8 million to $7 million, forgive accrued interest of $540,000, and extend maturity with 10% annual interest. The gain on restructuring is $1,290,590. For the third transaction,

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    Quiz_Reorganization

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    The document contains information about debt restructuring transactions for several companies. For the first transaction, the entity settled a $4 million mortgage and $300,000 in accrued interest by issuing 35,000 shares worth $4.5 million. Depending on whether the fair value, carrying amount, or liability value is used, the entry will include a gain/loss on restructuring and adjustments to share capital and premium. For the second transaction, a bank agreed to reduce debt from $8 million to $7 million, forgive accrued interest of $540,000, and extend maturity with 10% annual interest. The gain on restructuring is $1,290,590. For the third transaction,

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    317 views7 pages

    Quiz Reorganization

    Uploaded by

    Jam Surdivilla
    The document contains information about debt restructuring transactions for several companies. For the first transaction, the entity settled a $4 million mortgage and $300,000 in accrued interest by issuing 35,000 shares worth $4.5 million. Depending on whether the fair value, carrying amount, or liability value is used, the entry will include a gain/loss on restructuring and adjustments to share capital and premium. For the second transaction, a bank agreed to reduce debt from $8 million to $7 million, forgive accrued interest of $540,000, and extend maturity with 10% annual interest. The gain on restructuring is $1,290,590. For the third transaction,

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    FOR ITEMS 1 TO 3

    Pooh, Rita, and Company showed the following data with respect to a
    matured obligation:

    Mortgage Payable 4,000,000.00 1. D


    Accrued Interest Payable 300,000.00

    The entity entered into an agreement with the creditor for the issuance
    of share capital in full settlement of the mortgage.

    The agreement provided for the issue of 35,000 shares with par value of
    P100. The share is currently quoted at P120. The fair value of the
    liability is P4,500,000.
    2. A

    1. If the fair value of the share capital is used for the equity swap,
    the entry to record the equity swap would include a

    a. debit loss on debt restructuring, P250,000


    b. credit gain on debt restructuring, P250,000
    c. debit loss on debt restructuring, P100,000
    d. credit gain on debt restructuring, P100,000 3. C

    2. If the fair value of the liability is used for the equity swap,
    the entry to record the equity swap would include a

    a. debit loss on debt restructuring, P200,000


    b. credit gain on debt restructuring, P200,000
    c. credit share capital, P4,500,000
    d. credit share premium, P700,000

    3. If the carrying amount of the liability is used for the equity swap,
    the entry to record the equity swap would include a

    a. debit loss on debt restructuring, P800,000


    b. credit gain on debt restructuring, P800,000
    c. credit share premium, P800,000
    d. credit share capital, 4,300,000

    FOR ITEMS 4 AND 5


    Nah G. Pitt Company had an overdue 8% note payable to Secured
    Bank at P8,000,000 with accrued interest of P540,000.

    As a result of a settlement on Jan 1, 2021, Secured Bank agreed


    to the following restructuring agreement:

    a. Reduced the principal obligation to P7,000,000


    b. Forgave the accrued interest
    c. Extended the maturity date to December 31, 2022
    d. Annual interest of 10% is to be paid every December 31

    The present value of 1 at 8% for two periods is .8573, and the


    present value of an ordinary annuity of 1 at 8% for two periods
    is 1.7833.

    4. How much is the gain on debt restructuring?

    a. 1,390,590 c. 840,000
    b. 1,290,590 d. 940,000

    5. The entry to record the debt restructuring would include a

    a. credit Notes Payable - new, P7,700,000


    b. credit Notes Payable - new, P7,249,410
    c. credit Premium on Notes Payable, P249,410
    d. debit Discount on Notes Payable, 249,410

    FOR ITEMS 6 TO 10
    Gawat Company approved the following reorganization at year-end:
    1. The preference share capital is to be exchanged for P2,000,000
    of 10% debenture bonds.
    2. Goodwill is to be written off.
    3. The PPE are appraised by independent expert at a replacement
    cost of P12,000,000. The SEC approved the revaluation of the PPE.
    4. The resulting deficit is to be offset against the revaluation surplus.

    Statement of financial position at year-end is:

    Assets
    Cash 400,000.00
    Othe current assets 1,300,000.00
    Property, Plant, and Equipment 8,000,000.00
    Accumulated Depreciation - 2,000,000.00
    Goodwill 500,000.00 6. C
    Total Assets 8,200,000.00
    7. D

    Liabilities and Stockholders' Equity


    Current Liabilities 2,000,000.00 8. C
    Preference share capital, 12%cumulative, P100 par 1,500,000.00
    Ordinary Share Capital, P100 par, 50,000shares 5,000,000.00
    Share Premium 750,000.00
    Retained Earnings - 1,050,000.00 9. D
    Total Liabilities and Stockholders' Equity 8,200,000.00

    6. How much is the cost of the deficit to be wiped-out?


    10. B
    a. 1,050,000 c. 2,050,000
    b. 2,000,000 d. 0

    7. How much is the balance of the Retained Earnings after reorganization?

    a. 1,050,000 c. 2,050,000
    b. 2,000,000 d. 0

    8. How much is the balance of the Revaluation Surplus after reorganization?

    a. 4,000,000 c. 950,000
    b. 3,000,000 d. 1,950,000

    9. How much is the total asset after the reorganization?

    a. 13,700,000 c. 14,200,000
    b. 11,700,000 d. 10,700,000

    10. How much is the total SHE after the reorganization?

    a. 4,700,000 c. 7,700,000
    b. 6,700,000 d. 5,700,000
    Mortgage Payable 4,000,000.00
    Accrued Interest Payable 300,000.00
    Gain on debt resturing 100,000.00
    Share Capital 3,500,000.00
    Share Premium 700,000.00

    Mortgage Payable 4,000,000.00


    Accrued Interest Payable 300,000.00
    Loss on debt restructuring 200,000.00
    Share Capital 3,500,000.00
    Share Premium 1,000,000.00

    Mortgage Payable 4,000,000.00


    Accrued Interest Payable 300,000.00
    Share Capital 3,500,000.00
    Share Premium 800,000.00

    New Principal 7,000,000.00 Note Payable 8,000,000.00


    0.86 Accrued Interest Payable 540,000.00
    PV of New Principal 6,001,100.00 Note Payable - New
    5. C Premium on Notes Payable
    Interest 700,000.00 4. B Gain on Debt Restructuring
    1.78
    PV of Interest 1,248,310.00

    PV of New Loan Payable 7,249,410.00

    Preference share capital 1,500,000.00


    Retained Earnings 500,000.00
    Bonds Payable 2,000,000.00

    Retained Earnings 500,000.00


    Goodwill 500,000.00

    PPE 4,000,000.00
    Accumulated Depreciation 1,000,000.00
    Revaluation Surplus 3,000,000.00

    RE-Beg Bal - 1,050,000.00


    Exchange of Prefered shares - 500,000.00
    Write-off of Goodwill - 500,000.00
    - 2,050,000.00

    Retained Earnings after Reorganization is zero

    PPE Revaluation 3,000,000.00


    Deficit to be Wiped out - 2,050,000.00
    Revaluation Surplus after Reorganization 950,000.00

    Total Assets before reorganization 8,200,000.00


    Write-off of Goodwill - 500,000.00
    PPE Revaluation 3,000,000.00
    Total Assets after reorganization 10,700,000.00

    Total Assets after reorganization 10,700,000.00


    Less: Liabilities before reorganization - 2,000,000.00
    Preference Shares converted into Bonds - 2,000,000.00
    Stockholders' Equity after reorganization 6,700,000.00
    7,000,000.00
    249,410.00
    1,290,590.00

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