Question

Tsui Corporation went through a financial reorganization by writing down its buildings by $107,000 and eliminating its deficit, which was $182,000 before the reorganization. As part of the reorganization, the creditors agreed to take back 55% of the common shares in lieu of payment of the debt of $1.8 million (notes payable). Using the three-step method, prepare the entries to record the financial reorganization assuming that Tsui follows ASPE.

Answer 1

Deficit ............................................................            107,000

Buildings.............................................                                       107,000

Common Shares..............................................            289,000

Deficit ................................................                                      289,000

($182,000 + $107,000)

Notes Payable................................................          1,800,000

Common Shares...................................                                               1,800,000