009 Book Value Per Share, Quasi-Reorganization

Question 1

What is the effect of a quasi-reorganization on retained earnings?

Answer 1

Increase in retained earnings.

Question 2

What is the effect of a quasi-reorganization on total owners’ equity?

Answer 2

Decrease in total owners’ equity.

Question 3

What is the effect on book value per share of a transaction that increases earning?

Answer 3

Increase in book value per share.

Question 4

What is the effect of dividends in arrears on book value per share?

Answer 4

Decrease on book value per share.

Question 5

List the accounting steps in a quasi-reorganization.

Answer 5

1 Write assets to market value, further reducing retained earnings; 2 Reduce contributed capital to absorb earnings deficit; 3 If needed, change par value or number of shares of common stock to absorb remaining deficit.

Question 6

List the requirements for a quasi-reorganization.

Answer 6

1 Shareholder and creditor approval; 2 Retained earnings balance must be zero immediately afterwards; 3 No contributed capital account can have a negative balance afterwards; 4 Assets must be written down to market value; 5 Retained earnings must be dated for 3-10 years afterwards.

Question 7

Define “common stockholders’ equity”.

Answer 7

Total Owner’s Equity after preferred dividend claims are removed.

Question 8

Define “book value per share”.

Answer 8

Common stockholders’ equity per share of outstanding common stock at the end of the period.