Corporate Reorganization

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CORPORATE REORGANIZATION Aristotle Inc has petitioned the court for relief and this was granted on Jan 1, 2012 when the stockholders pledged to infuse additional capital if the business is found unable to service its debts after one year. It has currently 30,000 common shares with a par value of P100 or a total of P3,000,000. Retained earnings is a deficit of P3,100,000. The petition includes a deferment of liabilities for a period of one year and condonation of interest expense during receivership. The company has the following assets and liabilities as at Jan 1, 2012: Assets Liabilities Cash Accounts receivables P 96,000 800,000 Accounts Payable P 200,000 Inventories 1,000,000 7% Notes dated Jan 1, 2011 1,800,000 Land 1,000,000 Accrued Interest 276,000 Buildings (net of 20% depn) 1,200,000 7.5% Bonds issued Jan 1, 2011 2,000,000 Equipment (net of 20%depn)) 580,000 Salaries Payable 500,000 The following are the transactions related to asset realization and liquidation of liabilities which took place in 2012. In an attempt by the company to rehabilitate, the court placed it under receivership with Atty. John Magno. The aforementioned assets and liabilities were entrusted to him. 1. A purchase order for P100,000 was honored by Atty Magno. 2. Credit Sales amounted to P950,000. 3. Collections were 80% of the old accounts and 75% of the new accounts. 4. Old accounts were paid in the amount of P80,000 and 50% of the new accounts. 5. The land was sold at a gain of P300,000 6. Two of the three buildings were sold at a loss of P200,000. 7. Half of the equipments which were idle were sold at 80% of its book value. 8. Operating expenses of P130,000 were paid including reorganization cost of P30,000.

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Corporate Reorganization

Transcript of Corporate Reorganization

Page 1: Corporate Reorganization

CORPORATE REORGANIZATION

Aristotle Inc has petitioned the court for relief and this was granted on Jan 1, 2012 when the stockholders pledged to infuse additional capital if the business is found unable to service its debts after one year. It has currently 30,000 common shares with a par value of P100 or a total of P3,000,000. Retained earnings is a deficit of P3,100,000. The petition includes a deferment of liabilities for a period of one year and condonation of interest expense during receivership. The company has the following assets and liabilities as at Jan 1, 2012:

Assets Liabilities Cash Accounts receivables

P 96,000 800,000 Accounts Payable P 200,000

Inventories 1,000,000 7% Notes dated Jan 1, 2011 1,800,000 Land 1,000,000 Accrued Interest 276,000 Buildings (net of 20% depn) 1,200,000 7.5% Bonds issued Jan 1, 2011 2,000,000 Equipment (net of 20%depn)) 580,000 Salaries Payable 500,000

The following are the transactions related to asset realization and liquidation of liabilities which took place in 2012. In an attempt by the company to rehabilitate, the court placed it under receivership with Atty. John Magno. The aforementioned assets and liabilities were entrusted to him.

1. A purchase order for P100,000 was honored by Atty Magno. 2. Credit Sales amounted to P950,000.3. Collections were 80% of the old accounts and 75% of the new accounts.4. Old accounts were paid in the amount of P80,000 and 50% of the new accounts.5. The land was sold at a gain of P300,000 6. Two of the three buildings were sold at a loss of P200,000.7. Half of the equipments which were idle were sold at 80% of its book value.8. Operating expenses of P130,000 were paid including reorganization cost of P30,000. 9. Inventories on hand at this point amounted to P550,00010. Provision for depreciation: 5% on the remaining building, and 8% on the remaining equipment.11. Doubtful accounts were estimated at 3% of the outstanding balances.12. On Dec 31, 2012 the company was ready to pay for the liabilities:

a) The old notes were paid including accrued interest from issue date to Dec 2011 at the negotiated rate of 5%.

b) 50% of the bonds were paid and the bondholders agreed to receive this at the book value including accrued interest for 2011 at a negotiated rate of 5%. c) Half of the salaries payable were also paid.

Required:

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a) Entries in 2012 for both books including the transfer to receiver on Jan 1, 2012 and back to the company on Jan 3, 2013.b) After the transfer back to the company was made, in an attempt to further improve financial standing of the business

the bondholders agreed to receive unissued shares of stock for the remaining balance including accrued interest. Additional entry in the books of the corporation. c) Determine the Cash Balance, Share Capital and Retained Earnings as at January 3, 2013. d) Realization and Liquidation Account as at Jan 1, 2013. Prove the balance of the assets and liabilities for hidden charges and credits.

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3AAC and 3EACSolution to Aristotle Problem:

Book of Magno, Receiver Books of Aristotle Co

Aristotle in Receivership 100,000 Cash 96,000 Accounts Payable 200,000Accounts Receivable-old 800,000 Salaries Payable 500,000Inventory 1000,000 Notes Payable 1,800,000Land 1,000,000 Bonds Payable 2,000,000Building 1,200,000 Accrued Interest 276,000Equipment 580,000 Magno, Receiver 100,000 Accounts Payable-old 200,000 Cash 96,000 Salaries Payable-old 500,000 Accts Receivable-old 800,000 Notes Payable-old 1,800,000 Inventory 1.000,000 Bonds Payable-old 2,000,000 Land 1,000,000 Accrued Interest-old 276,000 Building 1,200,000

Equipment 580,000Merchandise Inventory 100,000 Accounts Payable-new 100,000

Accounts Receivable (new) 950,000 Sales 950,000

Cash 1,352,500 Accts Receivable –new 712,500

Accounts Receivable- old 640,000

Accounts Payable-Old 80,000Accounts Payable New 50,000 Cash 130,000

Cash 1,300,000 Land 1,000,000 Gain on Sale of Land 300,000

Cash 600,000Loss on sale of Bldg 200,000 Building, net 800,000

Cash 232,000

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Loss on sale of Equipt 58,000 Equipment, net 290,000

Operation Expense 100,000Receiver Expenses 30,000 Cash 130,000

Cost of Goods Sold 500,000 Mdse Inventory 500,000

Depreciation, Building 25,000Depreciation, Equipment 29,000 Accum Depn, Building 25,000 Accum Depn, Equipment 29,000

Bad Debts 11,925 Allow for Bad Debts-old 4,800 Allow for Bad Debts-new 7,125

Notes Payable 1,800,000Accrued Interest 126,000 Cash 1,890 ,000 Gain on Debt Settlement 36,000

Bonds Payable-old 1,000,000Accrued Interest 75,000 Cash 1,050,000 Gain on Debt Settlement 25,000

Salaries Payable-old 250,000 Cash 250,000

Sales 950,000Gain Sale of Land 300,000Gain on Debt Settlement 61,000 Loss on Sale of Bldg 200,000 Loss on Sale of Equipt 58,000 Operating Expenses 100,000 Receiver Expenses 30,000 Depreciation 54,000 Bad Debts 11,925 Cost of Goods Sold 500,000

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Income Summary 357,075

Income Summary 357,075 Magno, Receiver 357,075 Aristotle in Receivrship 357,075 Retained Earnings 357,075

Aristotle in Receivership 257,075 Cash 130,500Allow for Bad Debts-New 7,125 Accts Recble- new 237,500Allow for Bad Debts-Old 4,800 Accts Recble-old 160,000Accts Payable-New 50,000 Inventories- 600,000Accts Payable-old 120,000 Bldg, net 375,000Bonds Payable-old 1,000,000 Equipt, net 261,000Accrued Interest-old 75,000 Aristotle in Receivership 257,075Salaries Payable-old 250,000 All for Bad Debts-New 7,125 Cash 130,500 Allow for Bad Debts-Old 4,800 Accts Recble- new 237,500 Accts Payable-New 50,000 Accts Recble-old 160,000 Accts Payable-old 120,000 Inventories- 600,000 Bonds Payable-old 1,000,000 Bldg, net 375,000 Accrued Interest-old 75,000 Equipt, net 261,000 Salaries Payable-old 250,000

b) Bonds Payable 1,000,000 Accrued Interest 75,000 Share Capital 1,075,000

a) Share Capital P3,000,000 + P1,075,000= P4,075,000Retained Earnings P3,100,000 – P357,075 (2,742,925)

Net Assets P1,332,075

A S S E T S

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To be realized: Accounts Receivable-.old 800,000 Inventory 1,000,000 Land 1,000,000 Building 1,200,000 Equipment 580,000Acquired: Accounts Receivable-new 950,000 Inventory 100,000

Realized: Accts Receivable new 712,500 Accts Receivable old 640,000 Land 1,300,000 Building 600,000 Equipment 232,000Not Realized: Accounts Receivable new 230,375 Accounts Receivable old 155,200 Inventory-new 100,000 Inventory-old 500,000 Building 375,000 Equipment 261,000

LIABILITIESLiquidated: Accts Payable old 80,000 Accounts Payable new 50,000 Notes Payable and 1,800,000 Accrued Interest 90,000 Bonds Payable and 1,000,000 Accrued Interest 50,000 Salaries Payable 250,000Not Liquidated: Accounts Payable old 120,000 Accounts Payable new 50,000 Salaries Payable 250,000

To be liquidated: Accts Payable-old 200,000 Bonds Payable-old 2,000,000 Notes Payable-old 1,800,000 Accrued Interest-old 276,000 Salaries Payable-old 500,000

Incurred: Accts Payable-new 100,000

Bonds Payable 1,000,000 Accrued Interest 75,000

SUPPLEMENTARY

TOTALS 10,832,075 10,832,075

To prove: Debit Balance of Assets will be P523,925, made up of : Cost of Sales P 500,000

Operating Expenses 100,000Receiver Expenses 30,000Net Income 257,075

Sales 950,000

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Loss on Sale of Building 200,000 Loss on Sale of Equipt 58,000 Gain on Sale of Land (300,000)

Depreciation 54,000 Bad Debts 11,925 Debit Balance P 523,925

To prove: Credit Balance of Liabilities will be P61,000, made up of: Gain on Debt Settlement P 61,000

To prove the cash balance: Equity 1,332,075 Liabilities not liquidated 420,000 Assets not realized (1,621,575) Cash balance 130,500

To determine net income the short cut way:Assets to be realized 4,580,000 Assets realized 3,484,500Assets Acquired 1,050,000 Assets not realized 1,621,575Liabilities liquidated 3,320,000 Liabilities to be liquidated 4,776,000Liabilities not liquidated 1,495,000 Liabilities assumed 100,000Supplementary charges 130,000 Supplementary credits 950,000Totals 10,585,000 Totals 10,932,075Net Income 357,075

10,932,075 10,932,075

Or get the Debit balance of Assets 523,925Add Supplementary charges 130,000Debit total 653,925

Get the balance of 61,000Add Supplementary credits 950,000Credit total 1,011,000

Net Income 357,075

3FAC and 3BACSolution to Aristotle Problem:

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Book of Magno, Receiver Books of Aristotle Co

Aristotle in Receivership 100,000 Cash 96,000 Accounts Payable 200,000Accounts Receivable-old 800,000 Salaries Payable 500,000Inventory 1000,000 Notes Payable 1,800,000Land 1,000,000 Bonds Payable 2,000,000Building 1,200,000 Accrued Interest 276,000Equipment 580,000 Magno, Receiver 100,000 Accounts Payable-old 200,000 Cash 96,000 Salaries Payable-old 500,000 Accts Receivable-old 800,000 Notes Payable-old 1,800,000 Inventory 1.000,000 Bonds Payable-old 2,000,000 Land 1,000,000 Accrued Interest-old 276,000 Building 1,200,000

Equipment 580,000Merchandise Inventory 100,000 Accounts Payable-new 100,000

Accounts Receivable (new) 950,000 Sales 950,000

Cash 1,352,500 Accts Receivable –new 712,500

Accounts Receivable- old 640,000

Accounts Payable-Old 80,000Accounts Payable New 50,000 Cash 130,000

Cash 1,300,000 Land 1,000,000 Gain on Sale of Land 300,000

Cash 600,000Loss on sale of Bldg 200,000 Building, net 800,000

Cash 232,000Loss on sale of Equipt 58,000 Equipment, net 290,000

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Operation Expense 100,000Receiver Expenses 30,000 Cash 130,000

Cost of Goods Sold 550,000 Mdse Inventory 550,000

Depreciation, Building 25,000Depreciation, Equipment 29,000 Accum Depn, Building 25,000 Accum Depn, Equipment 29,000

Bad Debts 11,925 Allow for Bad Debts-old 4,800 Allow for Bad Debts-new 7,125

Notes Payable 1,800,000Accrued Interest 126,000 Cash 1,890 ,000 Gain on Debt Settlement 36,000

Bonds Payable-old 1,000,000Accrued Interest 75,000 Cash 1,050,000 Gain on Debt Settlement 25,000

Salaries Payable-old 250,000 Cash 250,000

Sales 950,000Gain Sale of Land 300,000Gain on Debt Settlement 61,000 Loss on Sale of Bldg 200,000 Loss on Sale of Equipt 58,000 Operating Expenses 100,000 Receiver Expenses 30,000 Depreciation 54,000 Bad Debts 11,925 Cost of Goods Sold 550,000 Income Summary 307,075

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Income Summary 307,075 Magno, Receiver 307,075 Aristotle in Receivrship 307,075 Retained Earnings 307,075

Aristotle in Receivership 207,075 Cash 130,500Allow for Bad Debts-New 7,125 Accts Recble- new 237,500Allow for Bad Debts-Old 4,800 Accts Recble-old 160,000Accts Payable-New 50,000 Inventories- 550,000Accts Payable-old 120,000 Bldg, net 375,000Bonds Payable-old 1,000,000 Equipt, net 261,000Accrued Interest-old 75,000 Aristotle in Receivership 207,075Salaries Payable-old 250,000 All for Bad Debts-New 7,125 Cash 130,500 Allow for Bad Debts-Old 4,800 Accts Recble- new 237,500 Accts Payable-New 50,000 Accts Recble-old 160,000 Accts Payable-old 120,000 Inventories- 550,000 Bonds Payable-old 1,000,000 Bldg, net 375,000 Accrued Interest-old 75,000 Equipt, net 261,000 Salaries Payable-old 250,000

b) Bonds Payable 1,000,000 Accrued Interest 75,000 Share Capital 1,075,000

a) Share Capital P3,000,000 + P1,075,000= P4,075,000Retained Earnings P3,100,000 - P307,075 (2,792,925)

Net Assets P1,282,075

A S S E T STo be realized: Accounts Receivable-.old 800,000 Inventory 1,000,000

Realized: Accts Receivable new 712,500 Accts Receivable old 640,000

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Land 1,000,000 Building 1,200,000 Equipment 580,000Acquired: Accounts Receivable-new 950,000 Inventory 100,000

Land 1,300,000 Building 600,000 Equipment 232,000Not Realized: Accounts Receivable new 230,375 Accounts Receivable old 155,200 Inventory-new 100,000 Inventory-old 450,000 Building 375,000 Equipment 261,000

LIABILITIESLiquidated: Accts Payable old 80,000 Accounts Payable new 50,000 Notes Payable and 1,800,000 Accrued Interest 90,000 Bonds Payable and 1,000,000 Accrued Interest 50,000 Salaries Payable 250,000Not Liquidated: Accounts Payable old 120,000 Accounts Payable new 50,000 Salaries Payable 250,000

To be liquidated: Accts Payable-old 200,000 Bonds Payable-old 2,000,000 Notes Payable-old 1,800,000 Accrued Interest-old 276,000 Salaries Payable-old 500,000

Incurred: Accts Payable-new 100,000

Bonds Payable 1,000,000 Accrued Interest 75,000

SUPPLEMENTARY

TOTALS 10,882,075 10,882,075

To prove: Debit Balance of Assets will be P573,925, made up of : Cost of Sales P 550,000 Loss on Sale of Building 200,000 Loss on Sale of Equipt 58,000

Operating Expenses 100,000Receiver Expenses 30,000Net Income 307,075

Sales 950,000

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Gain on Sale of Land (300,000) Depreciation 54,000

Bad Debts 11,925 Debit Balance P 573,925

To prove: Credit Balance of Liabilities will be P61,000, made up of: Gain on Debt Settlement P 61,000

To prove the cash balance: Equity 1,282,075 Liabilities not liquidated 420,000 Assets not realized (1,571,575) Cash balance 130,500

To determine net income the short cut way:

Assets to be realized 4,580,000 Assets realized 3,484,500Assets Acquired 1,050,000 Assets not realized 1,671,575Liabilities liquidated 3,320,000 Liabilities to be liquidated 4,776,000Liabilities not liquidated 1,495,000 Liabilities assumed 100,000Supplementary charges 130,000 Supplementary credits 950,000Totals 10,585,000 Totals 10,882,075Net Income 307,075

10,882,075 10,882,075

Or get the Debit balance of Assets 573,925Add Supplementary charges 130,000Debit total 703,925

Get the balance of Liabilities 61,000Add Supplementary credits 950,000Credit total 1,011,000

Net Income 307,075

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Delete this pageAR 800,000 A - 800,000Invty 1,000,000 B1,000,000Land 1,000,000Bldg 1,200,000Equip 580,000

Jan 1, 2012 96,000 4,676,000 200,000 500,000 1,800,000 276,000 2,000,000 3,000,000

(3,100,000)

Donated shares 540,000 (540,000)Acct purchases (50,000) Invty(n) 100,000 (new) 50,000AP old paid (80,000) (old) (80,000)Acct sales AR (new) 950,000 Sales 950,000Collected AR 1,112,500 AR(old) (400,000)

712,500 AR(new) (712,500)Land sold 1,300,000 Land (1,000,000) Gain 300,000Bldgs sold 600,000 Bldgs (800,000) Loss (200,000) Equipt sold 232,000 Equipt (290,000) Loss ( 58,000)Expenses (130,000) Expenses (130,000)

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Invtory (550,000) Cost of S (550,000)Invtory (275,000) (300,000) Gain 25,000

NP paid (1,936,000) (1,800,000) (136,000)Bonds Paid (1,070,000) (70,000) (1,000,000)Bonds Exchangd (70,000) (1,000,000) APIC 530,000 540,000Depreciation Acc DepnBldg(44,444) Depn (73,444)

AccDepnEquip(29,000) Bad Debts (19,125)Bad Debts Allow for Bad (19,125)Jan 1, 2012 P 74,500 P1,509,931 170,000 200,000 0 0 0 3,000,000 1,785,569 0