D is corrent. The solutions approach is to prepare the journal entries to give effect to the quasi reorganization.Step 1: Revalue all assets to their current values by adjusting the deficit in retained earnings.| RE | 500,000 | | P,P&E | | 350,000 | | OA | | 150,000 |
Step 2: Create enough paid-in capital to eliminate the $900,000 deficit in retained earnings, which results after the above entry is posted. Since a $300,000 balance already exists in paid-in capital, the additional amount needed is $600,000.| CS | 600,000 | | | Paid-in capital | | 600,000 |
Step 3: Eliminate the deficit in retained earnings.| Paid-in capital | 900,000 | | | RE | | 900,000 |
The answer ($600,000) is derived in the second entry; the third entry is not necessary if you remembered that common stock would not be further affected.A is incorrect. The solutions approach is to prepare the journal entries to give effect to the quasi reorganization.Step 1: Revalue all assets to their current values by adjusting the deficit in retained earnings.| RE | 500,000 | | P,P&E | | 350,000 | | OA | | 150,000 |
Step 2: Create enough paid-in capital to eliminate the $900,000 deficit in retained earnings, which results after the above entry is posted. Since a $300,000 balance already exists in paid-in capital, the additional amount needed is $600,000.| CS | 600,000 | | | Paid-in capital | | 600,000 |
Step 3: Eliminate the deficit in retained earnings.| Paid-in capital | 900,000 | | | RE | | 900,000 |
The answer ($600,000) is derived in the second entry; the third entry is not necessary if you remembered that common stock would not be further affected.B is incorrect. The solutions approach is to prepare the journal entries to give effect to the quasi reorganization.Step 1: Revalue all assets to their current values by adjusting the deficit in retained earnings.| RE | 500,000 | | P,P&E | | 350,000 | | OA | | 150,000 |
Step 2: Create enough paid-in capital to eliminate the $900,000 deficit in retained earnings, which results after the above entry is posted. Since a $300,000 balance already exists in paid-in capital, the additional amount needed is $600,000.| CS | 600,000 | | | Paid-in capital | | 600,000 |
Step 3: Eliminate the deficit in retained earnings.| Paid-in capital | 900,000 | | | RE | | 900,000 |
The answer ($600,000) is derived in the second entry; the third entry is not necessary if you remembered that common stock would not be further affected.C is incorrect. The solutions approach is to prepare the journal entries to give effect to the quasi reorganization.Step 1: Revalue all assets to their current values by adjusting the deficit in retained earnings.| RE | 500,000 | | P,P&E | | 350,000 | | OA | | 150,000 |
Step 2: Create enough paid-in capital to eliminate the $900,000 deficit in retained earnings, which results after the above entry is posted. Since a $300,000 balance already exists in paid-in capital, the additional amount needed is $600,000.| CS | 600,000 | | | Paid-in capital | | 600,000 |
Step 3: Eliminate the deficit in retained earnings.| Paid-in capital | 900,000 | | | RE | | 900,000 |
The answer ($600,000) is derived in the second entry; the third entry is not necessary if you remembered that common stock would not be further affected. |
