MNO CO. has suffered operating losses for some time, but is now operating profitably and expects to continue to do so. Current and projected income, however will not be sufficient to eliminate the deficit near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from the government authorities and approval from shareholders, the board of directors decides to restate the company assets and paid-in capital balances in order to remove the deficit and make possible the declaration of dividends from profitable operations. A balance sheet for the company just prior to this action is presented: 250,000 1,500,000 Current assets PPE Accumulated Depreciation (600,000) 1,150,000 Total Liabilities 300,000 Ordinary shares, P10 par, 100,000 shares 1,000,000 Share Premium 100,000 Retained Earnings (deficit) |(250,000) 1,150,000 Total Assuming that the quasi reorganization shall be accomplished as follows: a. Property, plant and equipment are to be reduced to their present fair market value of P800,00 b. Inventories are to be written down by P50,000 c. Unaccrued liabilities shall be recognized at P150,000 d. Ordinary shares are to be reduced to par value of P5 What is the balance of share premium after the quasi reorganization?
MNO CO. has suffered operating losses for some time, but is now operating profitably and expects to continue to do so. Current and projected income, however will not be sufficient to eliminate the deficit near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from the government authorities and approval from shareholders, the board of directors decides to restate the company assets and paid-in capital balances in order to remove the deficit and make possible the declaration of dividends from profitable operations. A balance sheet for the company just prior to this action is presented: 250,000 1,500,000 Current assets PPE Accumulated Depreciation (600,000) 1,150,000 Total Liabilities 300,000 Ordinary shares, P10 par, 100,000 shares 1,000,000 Share Premium 100,000 Retained Earnings (deficit) |(250,000) 1,150,000 Total Assuming that the quasi reorganization shall be accomplished as follows: a. Property, plant and equipment are to be reduced to their present fair market value of P800,00 b. Inventories are to be written down by P50,000 c. Unaccrued liabilities shall be recognized at P150,000 d. Ordinary shares are to be reduced to par value of P5 What is the balance of share premium after the quasi reorganization?
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:MNO CO. has suffered operating losses for some time, but is now operating profitably and
expects to continue to do so. Current and projected income, however will not be sufficient
to eliminate the deficit near term. It also appears that plant assets are overstated considering
current prices and economic conditions. After receiving permission from the government
authorities and approval from shareholders, the board of directors decides to restate the
company assets and paid-in capital balances in order to remove the deficit and make possible
the declaration of dividends from profitable operations. A balance sheet for the company just
prior to this action is presented:
Current assets
250,000
1,500,000
(600,000)
1,150,000
PPE
Accumulated Depreciation
Total
Liabilities
300,000
Ordinary shares, P10 par, 100,000 shares
1,000,000
Share Premium
100,000
Retained Earnings (deficit)
(250,000)
1,150,000
Total
Assuming that the quasi reorganization shall be accomplished as follows:
a. Property, plant and equipment are to be reduced to their present fair market value of P800,000
b. Inventories are to be written down by P50,000
c. Unaccrued liabilities shall be recognized at P150,000
d. Ordinary shares are to be reduced to par value of P5
What is the balance of share premium after the quasi reorganization?
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