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Quasi-Reorganization The Hassani Corporation has the following balance sheet: Current assets $ 700,000 Current liabilities $...

Quasi-Reorganization
The Hassani Corporation has the following balance sheet:

Current assets $ 700,000 Current liabilities $ 600,000
Noncurrent assets 3,600,000 Long-term liabilities 2,950,000
Common stock ($10 par) 1,700,000
Retained earnings (950,000)
Total assets $4,300,000 Total liabilities and equity $4,300,000


Company profitability has been marginal, in part due to book values of noncurrent assets that do not adequately reflect the reduced earning power of the assets. To give its balance sheet a better basis for future profitability, the company decides to undertake a quasi-reorganization. Hassani writes down noncurrent assets to their fair value of $3,000,000 and replaces the current common stock with 100,000 shares of a new issue having a $1 par value.

Required

a. Prepare journal entries to record the quasi-reorganization.

General Journal
Description Debit Credit
Retained earningsCommon stockNoncurrent assetsAdditional paid-in capital
Retained earningsCommon stockNoncurrent assetsAdditional paid-in capital
To write down assets to fair value.
Retained earningsCommon stock ($10 par)Noncurrent assetsAdditional paid-in capital
Common stock ($1 par)
Retained earningsCommon stockNoncurrent assetsAdditional paid-in capital
To restructure common stock equity.
Retained earningsCommon stockNoncurrent assetsAdditional paid-in capital
Retained earningsCommon stockNoncurrent assetsAdditional paid-in capital
To eliminate deficit.


b. Prepare a balance sheet following the quasi-reorganization.

Hassani Corporation
Balance Sheet
Current assets $
Noncurrent assets
$
Current liabilities $
Long-term liabilities
Common stock ($1 par)
Additional paid-in capital
Retained earnings since (date)
$   

Solutions

Expert Solution

Journal entries to record the quasi-reorganization
General Journal Debit Credit
Retained earnings $600,000
    Noncurrent assets $600,000
(To write down assets to fair value)
Common stock ($10 par) 1700000
   Common stock ($1 par) 100000
   Additional paid in capital 1600000
(To restructure common stock equity)
Additional Paid in capital $1,550,000
   Retained earnings (950000+600000) $1,550,000
To eliminate deficit
b.
Following shows the balance sheet post quasi-reorganization
Hassani Corporation
Balance Sheet
Current assets 700000
Non current assets 3000000
3700000
Current liabilities 600000
Long-term liabilities 2950000
Common stock ($1 par) 100000
Additional paid in capital 50000 1600000-1550000
Retained earnings since (date) 0
3700000

ekkarill92 answered 3 months ago
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