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Quasi-Reorganization

Zoyhofski Corporation has incurred losses for several years, and currently has an $800,000 deficit in retained earnings. It has 100,000 shares of $10 par value common stock issued and outstanding, and has additional paid-in capital of $600,000. Due to a permanent decline in its economic prospects, Zoyhofski believes its assets are overvalued. As part of a quasi-reorganization, a $400,000 writedown is proposed to reflect the changed conditions. The present $10 par common stock is to be exchanged for a new issue bearing a $1 par value; each shareholder will receive one new share for every ten old shares.

Required

a. Prepare journal entries to record the quasi-reorganization.

Description	Debit	Credit
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
To write down assets.
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
Additional paid-in capital	Answer	Answer
To record exchange of equity interests.
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
AnswerAdditional paid-in capitalAssetsCashCommon stock ($1 par)Common stock ($10 par)Retained earnings	Answer	Answer
To eliminate deficit.

b. Prepare the shareholders equity section of Zoyhofskis balance sheet after the quasi-reorganization.

Shareholders' equity section after quasi-reorganization
Common stock, $1 par value	$Answer
Additional paid-in capital	Answer
Retained earnings	Answer
Total shareholders' equity	$Answer

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