Prepare journal entries

Lima Inc. has sustained heavy losses over a period of time and conditions warrant that Lima Inc. undergo

a quasi-reorganization on December 31, 2020.

The balance sheet of Lima Inc. on December 31, prior to the reorganization is:

Current assets P1,000,000

Property, plant and equipment P5,000,000

Less: Accumulated depreciation 1,500,000 3,500,000

Goodwill 500,000

Total assets P5,000,000

Current liabilities P1,100,000

Ordinary shares, P100 par value 5,000,000

Share premium on ordinary shares 500,000

Deficit (1,600,000)

Total assets P5,000,000

CASE 1:

The stockholders and creditors approved the quasi-reorganization effective January 2, 2021, to be

accomplished by: (a) a reduction in property, plant, and equipment (net) P3,100,000; (b) goodwill

should be written off; (c) a write-down of inventories (current asset) by P125,000; (d) a recognition of

additional accrued expenses at P75,000; and, (e) reduction in par value from P100 to P50.

Required:

1. Lima Inc.'s total assets after quasi-reorganization:

2. The balance in the Additional paid-in capital after the quasi-reorganization:

3. Total stockholders' equity after the quasi-reorganization:

CASE 2:

The Securities and Exchange Commission approved the quasi-reorganization on the basis of the

unrealistic valuation of the property, plant and equipment. Accordingly, the SEC recommended that the

PPE be appraised by an independent expert.

a. The PPE are determined to have replacement cost of P9,000,000.

b. The inventory is to be written down by P400,000.

c. The goodwill should be written-off.

d. Unrecorded accounts payable amounted to P200,000.

e. Any resulting deficit is charged against the revaluation surplus.

Required:

1. Lima Inc.'s total assets after the quasi-reorganization:

2. The balance in the Revaluation surplus after the quasi-reorganization is:

3. Total stockholders' equity after the quasi-reorganization: