Advanced Accounting Answer Key

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Reorganization and Troubled Debt Restructuring 135

CHAPTER 8

MULTIPLE CHOICE ANSWERS AND SOLUTIONS

8-1: a Trade accounts payable (P52,000 + P62,700) P114,700 12% preferred stock (5,000 x P1) P 5,000 Paid in capital in excess of par (5,000 x P9) 45,000 Cash (P62,700 x P0.80) _50,160 _100,160

Gain from discharge of indebtedness P 14,540

8-2: c

8-3: c

8-4: b Carrying value of the note payable: Principal P600,000 Interest __60,000 P660,000 Restructured value: Principal P400,000 Interest _110,000 _510,000

Gain on debt restructuring P150,000

8-5: d Other income: Fair value of land
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Since the company has a reorganization value of P760,000 but the assets have a market value of only P700,000 (P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of Amount Allocable to Tangible Assets must be recorded for P60,000.

Liabilities 300,000 Common stock (P330,000 x 80%) 264,000 Gain on debt discharge 36,000 To record settlement of liabilities.

Problem 8 – 2

2008
July 14: Costs of reorganization 50,000 Cash with escrow agent 50,000

Common stock 580,000 Common stock (60,000 x P1) 60,000 Additional paid in capital 520,000

Note payable –

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