Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 20, Problem 20.1.2E
To determine
Introduction: Chapter 11 of the US Bankruptcy Code deals with reorganization of the debtor’s business, that is, its affairs, debts and assets. Entities file Chapter 11 proceedings if they require time to restructure their debts. This form of bankruptcy proceedings is the most complex of all.
To choose: The statement which is true.
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Students have asked these similar questions
Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy:
The company has a reorganization value of $600,000.
a. Describe the rules to determine whether to apply fresh start accounting to Kansas City.
b. If fresh start accounting is appropriate, how will this company’s assets be reported?
c. If a Goodwill account is recognized in a reorganization, where should it be reported? What happens to this balance?
2a. Alpha Corporation owns assets valued at $400,000 and liabilities of $100,000. Beta Corporation transfers $160,000 of its voting stock and $40,000 in cash for 75% of Alpha's assets and all of its liabilities. Alpha distributes its remaining assets and the Beta stock to its shareholders. Alpha then liquidates. Is this a taxable transaction? If this is not a taxable transaction, then identify the type of reorganization.
b. Beta Corporation owns assets valued at $1,500,000 with liabilities of $700,000, and Alpha holds assets valued at $350,000 with liabilities of $150,000. Beta transfers 200,000 shares of stock and $50,000 cash, and it accepts $100,000 of Alpha's liabilities, in exchange for all of the Alpha assets. Alpha distributes the Beta stock to its shareholders for their Alpha stock and then ceases to exist. Is this a taxable transaction? If this is not a taxable transaction, then identify the type of reorganization.
c. Alpha Corporation obtained 200,000 shares of Beta…
Deficit Corporation has incurred losses from operations for many years. The board of directors applied for a quasi-reorganization in the SEC and eventually acquired an approval on August 31, 2020. Deficit’s balance sheet on this date is presented below (SEE PICTURE BELOW):As part of the quasi-reorganization process, PPE will be reduced by P1,750,000 while other assets be decreased by P750,000. Par value of the ordinary shares will be reduced by P5 per share. How much is the balance of shareholder’s equity after the quasi-reorganization?
a. P4,000,000
b. P8,000,000
c. P9,000,000
d. P5,000,000
Chapter 20 Solutions
Advanced Financial Accounting
Ch. 20 - What are the nonjudicial actions available to a...Ch. 20 - What is the difference between a Chapter 7 action...Ch. 20 - Prob. 20.3QCh. 20 - What is usually included in the plan of...Ch. 20 - Prob. 20.5QCh. 20 - Prob. 20.6QCh. 20 - Prob. 20.7QCh. 20 - Prob. 20.8QCh. 20 - How is the statement of affairs used in planning...Ch. 20 - What are the financial reporting responsibilities...
Ch. 20 - Prob. 20.11QCh. 20 - Creditors' Alternatives The creditors of Lost Hope...Ch. 20 - Prob. 20.3CCh. 20 - Prob. 20.1.1ECh. 20 - Prob. 20.1.2ECh. 20 - Prob. 20.1.3ECh. 20 - Prob. 20.1.4ECh. 20 - Prob. 20.1.5ECh. 20 - Prob. 20.2ECh. 20 - Prob. 20.3.1ECh. 20 - Prob. 20.3.2ECh. 20 - Prob. 20.3.3ECh. 20 - Prob. 20.3.4ECh. 20 - Prob. 20.3.5ECh. 20 - Chapter 7 Liquidation Penn Inc.'s assets have the...Ch. 20 - Prob. 20.5ECh. 20 - Chapter 11 Reorganization During the recent...Ch. 20 - Prob. 20.7PCh. 20 - Chapter 7 Liquidation, Statements of Affairs...Ch. 20 - Prob. 20.9P
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- Determine whether the following transactions are taxable in the current year, applying the corporate reorganization rules. If a transaction is not taxable, indicate what type of reorganization is affected, if any. Alpha Corporation owns assets valued at $400,000 and liabilities of $100,000. Beta Corporation transfers $160,000 of its voting stock and $40,000 in cash for 75% of Alpha’s assets and all of its liabilities. Alpha distributes its remaining assets and the Beta stock to its shareholders. Alpha then liquidates. Beta Corporation owns assets valued at $1,500,000 with liabilities of $700,000, and Alpha holds assets valued at $350,000 with liabilities of $150,000. Beta transfers 200,000 shares of stock and $50,000 cash, and it accepts $100,000 of Alpha’s liabilities, in exchange for all of the Alpha assets. Alpha distributes the Beta stock to its shareholders for their Alpha stock and then ceases to exist. Alpha Corporation obtained 200,000 shares of Beta Corporation’s stock…arrow_forwardPatimpalak Co. has been incurring losses for several years. On December 31, 2020, the SEC permitted Patimpalak to implement a quasi-reorganization after due approval of Patimpalak’s shareholders and creditors. Patimpalak’s statement of financial position immediately before the quasi-reorganization is shown below: Cash................................................................................................. 400,000 Receivables...................................................................................... 8,000,000 Inventory......................................................................................... 6,200,000 Building – net................................................................................... 3,200,000 Goodwill........................................................................................... 200,000 Liabilities.......................................................................................... 5,880,000 Share capital, ₱400, 50,000…arrow_forwardAssuming that the quasi reorganization shall be accomplished as follows: Property, plant and equipment are to be reduced to their fair market value of P800,000. Inventories are to be written down by P50,000. • Unaccrued obligation shall be recognized at P150,000. • The par value of ordinary Shares will be reduced to P5. 1. What is the balance of the retained earnings account as of 31 December 2019? Assuming that the quasi reorganization shall be accomplished as follows: Property, plant and equipment are to be reduced to their fair market value of P800,000. Inventories are to be written down by P50,000. • Unaccrued obligation shall be recognized at P150,000. • The par value of ordinary Shares will be reduced to P5. 2. What is the balance of the retained earnings account as of 31 December 2019?arrow_forward
- Ma Mannheim Corporation is ready to emerge from Chapter 11 bankruptcy under a reorganization plan accepted by all parties. Mannheim's balance sheet shows: Various assets $2,000,000 Prepetition liabilities, fully secured $400,000 Prepetition liabilities subject to compromise 1,360,000 Postpetition liabilities 820,000 Common stock 200,000 Retained deficit (780,000) TOTAL $2,000,000 TOTAL $2,000,000 There are no excess assets. The present value of future cash flows from the reorganized company's operating assets is $1,900,000 The creditors represented by the prepetition liabilities subject to compromise agree to take $580,000 in 7 percent notes payable plus 70 percent of the common stock as settlement. The old shareholders will have 30 percent of the common stock. After reorganization, Mannheim's retained earnings balance is Select one: a. $150,000 b. $(70,000) c. $500,000 d. $0.arrow_forwardIn a Type A reorganization in the United States, the following consideration may be used to acquire a target: a. Stock b. Cash c. NOn-equity securities d. All of the above In a Type A reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company: a. 20% b. 50% c. 80% d. 100% In a Type B reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company: a. 20% b. 50% c. 80% d. 100% In a Type B Reorganization, the stock purchases must be completed over no longer than a. 6-month period b. 9-month period c. 12-month period d. 3-month periodarrow_forwardProvide complete solution: The shareholders' equity section of the Solutions Company as of December 31, 2020 consisted of the following: Share capital, P30 par, 100,000 shares outstanding - P3,000,000; Share premium - P1,500,000; Accumulated profits (deficit) - P2,100,000. On January 1, 2021, the company put into effect a shareholder approved quasi-reorganization by reducing the par value of the shares to P5 and eliminating the deficit against share premium. What amount should Solutions Company report as share premium immediately after the quasi reorganization? A. P 4,000,000B. P 1,500,000C. P 600,000D. P 1,900,000arrow_forward
- Quatro Co. owns 95% of the shares of Cinco Co. (both CCPCs). Both companies have assets that have appreciated in value above their capital cost. If planned correctly, which of the following could result in a tax-deferred corporate reorganization? a. Only an amalgamation b. Only a wind-up c. Either an amalgamation or a wind-up d. Neither an amalgamation nor a wind-uparrow_forwardCh. 29. In 2021, Google, a company that specializes in internet-related service, acquired Fitbit, the fitness tracking company, to bolster its wearable capabilities. Google paid shareholders $7.25 per share in cash. This is an example of which of the following? Group of answer choices merger horizontal acquisition vertical acquisition conglomerate acquisitionarrow_forward54. ABC Company is in a capital deficiency position and is considering the possibility of liquidation. An analysis of the assets and liabilities of the entity is provided: Assets at net realizable value (pledged against liabilities of P150,000) P250,000 Assets at net realizable value (pledged against liabilities of P260,000) 100,000 Assets at net realizable value (not pledged against any liabilities) 160,000 Liabilities with priority 85,000 Unsecured creditors 400,000 Round off the estimated recovery percentage to XX.XX%, if needed. How much is the estimated payment to partially secured creditors?arrow_forward
- 51. ABC Company is in a capital deficiency position and is considering the possibility of liquidation. An analysis of the assets and liabilities of the entity is provided: Assets at net realizable value (pledged against liabilities of P150,000) P250,000 Assets at net realizable value (pledged against liabilities of P260,000) 100,000 Assets at net realizable value (not pledged against any liabilities) 160,000 Liabilities with priority 85,000 Unsecured creditors 400,000 Round off the estimated recovery percentage to XX.XX%, if needed. How much is the estimated payment to liabilities with priority?arrow_forwardQuasi-reorganization effected thru recapitalization includes, except A. creating enough share premium to absorb the deficit in the corporation B. creating enough revaluation surplus that can absorb the deficit thru revaluation of property, plant and equipment C. results to a zero balance in the retained earnings account after recapitalization. D. decreasing the par value of the shares which results to the increase the balance of the share premium account.arrow_forwardMario Company has been incurring losses for several years. On December 31, 2019, the SEC permitted Mario to implement a quasi-reorganization after due approval from its shareholders and creditors. Its balance sheet before quasi-reorganization is as follows. [Refer to the figure]The quasi-reorganization plan provides the following:• The PPE shall be revalued at an appraised amount of P8,500,000.• Goodwill shall be written off in full.• Par value shall be reduced by forty percent.• The deficit shall be wiped out firstly from Revaluation Surplus and any unabsorbed amount from Share Premium.1. How much is the total assets after the quasi-reorganization? 2. How much is the Share Premium after the quasi-reorganization? 3. How much is the Retained Earnings after the quasi-reorganization?arrow_forward
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