advanced accounting chapter 8

7/21/2019 Advanced Accounting Chapter 8

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Reorganization and Troubled Debt Restructuring 135

CHAPTER 8

MULTIPLE CHOICE

8-1: a

Trade accounts payable (P52,000 + P62,700)

P114,700

12% preferred stock (5,000 P1) P 5,000

Pa!d !n cap!tal !n ecess of par (5,000 P") 45,000

#as$ (P62,700 P0&0) '50,160

'100,160

Gain from discharge of indebtedness

14,540

8-2: c

8-3: c

8-4: b

#arry!n alue of t$e note payable*

Pr!nc!pal P600,000

nterest

''60,000 P660,000

estructured alue*

Pr!nc!pal P400,000

nterest

'110,000 '510,000Gain on debt restructuring

P150,000

8-5: d

Other income*

-a!r alue of landP450,000

.ooks alue of land

'/60,000

Other income

90,000

Extraordinary gain:

.ook alue of note payablePr!nc!pal P500,000

nterest ''60,000

P560,000

-a!r alue of land '450,000



Extraordinary gain

P110,000

8-6: a

.ook alue of bonds payableP500,000

Par alue of preferred stock (5,000 s$ares P100) '500,000

No gain no loss

0

136

Chapter 8

8-7: a

.ook alue of notes payable*

Pr!nc!pal P 2,500

nterest

'''500 P /,000

Par alue of coon stock !ssued (200 s$ares P5)

''1,000

dd!t!onal pa!d !n cap!tal

P 2,000

dd a!n on payent of accounts payable*

.ook alue P 10,000

Payent ''&,000 ''2,000

!otal gain on debt discharge

P 4,000

8-8: a

#arry!n alue of debt*

ote payable P100,000

nterest payable ''12,000

P112,000

-a!r alue ac$!nery

'(/6,000)

.alance of debt P

76,000

estructured debt*

ote payable P 50,000

nterest (P50,000 0& 2) '''&,000

''5&,000

"estructuring difference #gain$



P 1%,000

8-9: d

Pr!nc!pal

P/00,000nterest payable (/00,000 10%)

''/0,000

&arrying 'alue

P((0,000

8-10: c

3$ould be P/10,600

estructured pr!nc!pal of note payableP260,000

nterest payable*

n book alue (P/00,000 10% /0%) P ",000

n restructured (P260,000 &% 2) '41,600

''50,600

)uture cash flo*s to li+uidate the debt

P(10,00

8-11: d

8-12: d

-oss on transfer of land.

r!!nal cost P2"0,000

arket alue '270,000

P /0,000

Gain on restructuring of debt.#arry!n alue of debt P/00,000

arket alue of land '270,000

P (0,000Reorganization and Troubled Debt Restructuring 137

8-13: a

Transfer a!n (loss)*

#arry!n aount of eu!pent P&0,000-a!r alue of eu!pent 75,000

!ransfer loss P#5,000$

estructur!n a!n*#arry!n aount of t$e debt P100,000

-a!r alue of eu!pent transferred 75,000

"estructuring gain P /5,000

8-14: d

#arry!n aount of real estate transferred P100,000

-a!r alue of real estate "0, 000

-oss on restructuring of ayables P#10,000$



8-15: d

#arry!n aount of l!ab!l!ty P150,000

-a!r alue of real estate transferred "0,000

"estructuring gain P 0,000

8-16: ca!n on realuat!on of land (120,000 8 &5,000) P /5,000

a!n on t$e et!nu!s$ent of debt (1&5,000 8 120,000) 65,000

!otal gain P100,000

8-17: a

#arry!n alue of debt (P&00,000 + &0,000) P&&0,000

Total future payents (P700,000 + &0,000) 7&0,000

"estructuring gain P100,000

8-18: a

-!rst deter!ne t$e epected future cas$ flo9s as follo9s*

70,000 7"71" : P55,&0/5,600 16"005 : ",464

Present alue of future cas$ flo9 P65,267

T$e !nterest reenue can be coputed us!n t$e effect!e !nterest et$odas follo9s*

Present alue at 12;/1;06 P65,267

nterest !ncoe at 12;/1;07 (65,267 12%) 7,&/2

nterest rece!able at 12;/1;07 (70,000 &%) 5,600 2,2/2

Present alue at 12;/1;07 P67,4""

nterest income at 1/2(120% #3,499 x 1/$ P %,100

138

Chapter 8

SOLUTIONS TO PROLEMS

P!"b#$% 8 & 1

ourn al en tr ie s fo r co many em er ging fr om ba n6 ru tcy us ing fr es h st ar t

accounting.

8 ece!ables 10,000

nentory 10,000

.u!ld!n 100,000eoran!<at!on alue !n ecess of aount

llocable to tan!ble assets60,000

dd!t!onal pa!d !n cap!tal 1&0,000

To ad=ust accounts to arket alue as part of fres$ start account!n 3!nce t$e copany $as



a reoran!<at!on alue of P760,000 but t$e assets $ae a arket alue of only P700,000

(P"0,000 + P210,000 + P400,000), and account ent!tled eoran!<at!on >alue !n ?cess of

ount llocable to Tan!ble ssets ust be recorded for P60,000

@!ab!l!t!es /00,000#oon stock (P//0,000 &0%) 264,000

a!n on debt d!sc$are /6,000To record settlement of liabilities

P!"b#$% 8 & 2

200&

Auly 14* #osts of reoran!<at!on50,000

#as$ 9!t$ escro9 aent 50,000

#oon stock 5&0,000

#oon stock (60,000 P1) 60,000

dd!t!onal pa!d !n cap!tal 520,000

ote payable 8 10% 120,000

nterest payable (P120,000 10% /;12) /,000

ote payable 8 12% 12/,000

Trade accounts payable 100,000

#as$ P100,000 0&0) &0,000

a!n on debt d!sc$are 20,000

dd!t!onal pa!d !n cap!tal 2"0,000

a!n on debt d!sc$are 20,000

eta!ned earn!ns 260,000#osts of reoran!<at!on 50,000


P!"b#$% 8 & 3

'ad$ C"!("!a)*"+

a#a+c$ S,$$)

$c$%b$! 31. 2008

ASSETS

Current assets:

#as$ P 2/,000

nentory ''45,000 P 6&,000

Property and equipment:

@and 140,000

.u!ld!ns 220,000

?u!pent '154,000 '514,000



Total assets P5&2,000

LIAILITIES AN STOC/HOLERS EUIT

L*ab*#*)*$ +") b$c) )" c"%(!"%*$

Current liabilities:ccounts payable P 60,000

@onBter l!ab!l!t!es* ote payable (2006) P100,000

ote payable (200/) '100,000 ' 200,000 P260,000

Liabilities subject of compromise

ccounts payable 12/,000

ccrued epenses /0,000

ncoe taes payable 22,000

ote payable (due 200&) '170,000 '/45,000

Total l!ab!l!t!es 605,000

Stocholders! Equity

#oon stock 200,000

eta!ned earn!ns (def!c!t) (22/,000) '(2/,000)

Total l!ab!l!t!es and stock$oldersC eu!ty (def!c!t) P5&2,000

P!"b#$% 8 & 4

P!$#*%*+a! c"%()a)*"+:

"oo #alues prior to reorgani$ation:

Total assets (P100,000 + P112,000 + P420,000 + P7&,000) P710,000

Total l!ab!l!t!es (P&0,000 + p/5,000 + P100,000 + P200,000 +

P1&5,000 + P200,000) P&00,000#oon stock (!en) P240,000

Def!c!t (!en) P//0,000

140

Chapter 8

"oo #alues after reorgani$ation:

Total assets (reoran!<at!on alue) P7&0,000

Total l!ab!l!t!es (P5,000 + P4,000 + P100,000 + P50,000 +P71,000 + P110,000) P/40,000

#oon stock (returned s$ares are re!ssued) P240,000

Def!c!t (el!!nated) 808

dd!t!onal pa!d !n cap!tal (suee<e) P200,000

3!nce t$e copany 9!ll $ae /0,000 s$ares outstand!n after t$e reoran!<at!on, t$e add!t!onal pa!d !n

cap!tal euals P666 per s$are

.ecause t$e copany $as a reoran!<at!on alue of P7&0,000 but t$e assets $ae a arket alue of onlyP7/5,000, an account ent!tled eoran!<at!on >alue !n ?cess of ount allocable to Tan!ble ssets ust

be recon!<ed for P45,000

'OURNAL ENTRIES:



1 @and and bu!ld!ns &0,000

eoran!<at!on >alue !n ecess of aount

allocable to tan!ble assets45,000

ccounts rece!able 20,000nentory 22,000

?u!pent 1/,000


To adjust accounts to maret #alue as part of fresh start accounting%

2 #oon stock144,000


To record shares turned in to the company by the o&ners as part of the reorgani$ation plan% '()*** shares at P( par #alue%

3 ccounts payable &0,000

ote payable 5,000#oon stock, P& par alue &,000

dd!t!onal pa!d !n cap!tal (P666 per s$are) 6,666

a!n on debt d!sc$are 60,//4

To record settlement of accounts payable%

4 ccrued epenses /5,000

ote payable 4,000

a!n on debt d!sc$are /1,000To record settlement of accrued expenses%

5 ote payable 200,000

ote payable 50,000#oon stock, P& par alue &0,000

dd!t!onal pa!d !n cap!tal (P666 per s$are) 66,667

a!n on debt d!sc$are /,///

To record settlement of note payable due in +**,

6 ote payable 1&5,000 ote payable 71,000

#oon stock, P& par alue 56,000dd!t!onal pa!d !n cap!tal, P666 per s$are 46,667

a!n on debt d!sc$are 11,///

To record settlement of note payable due in +**(


P!"b#$% 8 & 5

7 ote payable 200,000

ote payable 110,000

a!n on debt d!sc$are "0,000

To record settlement of note payable due in +**-

8 dd!t!onal pa!d !n cap!tal (P//4,000 8 P200,000)1/4,000

a!n on debt d!sc$are 1"6,000

eta!ned earn!ns (def!c!t) //0,000

To adjust additional paid in capital to appropriate balance) close out gain) and eliminate

deficit balance as part of fresh start accounting%



3!nce t$e #opany $as a reoran!<at!on alue of P&00,000 but only P65/,000 can be ass!ned to

spec!f!c assets based on arket alue, t$e rea!n!n P147,000 !s reported as a eoran!<at!on

>alue !n ?cess of ount llocable to dent!f!able ssets

S+ C"!("!a)*"+

a#a+c$ S,$$) & !$, S)a!) Acc"+)*+$c$%b$! 31. 2008

ASSETS

Current assets

ccounts rece!able P 1&,000

nentory '111,000 P12",000

Property and equipment

@and and bu!ld!ns 27&,000

ac$!nery '121,000 /"",000

.ntangible assets

Patents 125,000

eoran!<at!on alue !n ecess of aount allocable To !dent!f!able assets '147,000 '272,000

Total assets P&00,000

LIAILITIES AN STOC/HOLERS EUIT

Current liabilities

ccounts payable P "7,000

Long/term liabilities

ote payable (due !n 2 years) P /5,000

ote payable (due !n 5 years) 50,000 ote payable (due !n & years) '100,000 '1&5,000

Total l!ab!l!t!es P2&2,000

Stocholders! Equity:

#oon stock P500,000

dd!t!onal pa!d !n cap!tal (suee<e) ''1&,000 '51&,000

Total l!ab!l!t!es and stock$oldersC eu!ty P&00,000

advanced accounting chapter 8

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