Problem 39 Titanium Company has suffered substantial operating losses for several years. The entity's ability to service debts and pay operating expense has been impaired. Consequently, the owners and creditors have decided to execute a quasi- reorganization. The statement of financial position of Titanium Company on December 31, 2020 prior to reorganization is shown on the next page: Page 2 of 3 BSA 2102 - Intermediate Accounting 1 & 2 LECO3G - Accounting for Equity ASSETS Cash P 200,000 Accounts receivable 300,000 Inventory 500,000 Property, plant and equipment 9.900.000 Accumulated depreciation (3,100,000) Goodwill 1.200.000 Total assets P9,000,000 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable P1,100,000 Note payable 500,000 Mortgage payable 4,200,000 Ordinary share capital, P100 par, 50,000 shares 5,000,000 Share premium 1,000,000 Retained earnings (2.800.000) Total liabilities and shareholders' equity P9.000.000 The entity provided the following information in relation to the quasi-reorganization: 1. An independent appraisal of the entity's inventory reveals goods with carrying amount of P150,000 to be obsolete and worthless. 2 Equipment costing P2,000,000 and with accumulated depreciation of P1.200,000 is expected to be sold for P300,000 However, the holder of the note payable agrees to accept the equipment in full satisfaction of the note. 3. The goodwill is to be written off as loss. 4. The mortgage holder agrees to accept 40,000 new preference shares with P100 par value in satisfaction of the liability 5. The par value of the ordinary shares is reduced to P20. 6. The resulting deficit is offset against share premium Required: a Prepare journal entries to give effect to the quasi-reorganization. b. Prepare a statement of financial position immediately after the reorganization. Problem 39 Titanium Company has suffered substantial operating losses for several years. The entity's ability to service debts and pay operating expense has been impaired. Consequently, the owners and creditors have decided to execute a quasi- reorganization. The statement of financial position of Titanium Company on December 31, 2020 prior to reorganization is shown on the next page: Page 2 of 3 BSA 2102 - Intermediate Accounting 1 & 2 LECO3G - Accounting for Equity ASSETS Cash P 200,000 Accounts receivable 300,000 Inventory 500,000 Property, plant and equipment 9.900.000 Accumulated depreciation (3,100,000) Goodwill 1.200.000 Total assets P9,000,000 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable P1,100,000 Note payable 500,000 Mortgage payable 4,200,000 Ordinary share capital, P100 par, 50,000 shares 5,000,000 Share premium 1,000,000 Retained earnings (2.800.000) Total liabilities and shareholders' equity P9.000.000 The entity provided the following information in relation to the quasi-reorganization: 1. An independent appraisal of the entity's inventory reveals goods with carrying amount of P150,000 to be obsolete and worthless. 2 Equipment costing P2,000,000 and with accumulated depreciation of P1.200,000 is expected to be sold for P300,000 However, the holder of the note payable agrees to accept the equipment in full satisfaction of the note. 3. The goodwill is to be written off as loss. 4. The mortgage holder agrees to accept 40,000 new preference shares with P100 par value in satisfaction of the liability 5. The par value of the ordinary shares is reduced to P20. 6. The resulting deficit is offset against share premium Required: a Prepare journal entries to give effect to the quasi-reorganization. b. Prepare a statement of financial position immediately after the reorganization