Book Value per Share, Quasi Reorganization

Question 1

List the accounting steps in a quasi-reorganization

Answer 1

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 2

Define “book value per share”

Answer 2

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

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 a quasi-reorganization on total owners’ equity?

Answer 4

Decrease in total owners’ equity

Question 5

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

Answer 5

Decrease on book value per share

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

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

Answer 8

Increase in retained earnings.

Question 9

What is the equation for Book Value per share outstanding?

Answer 9

Common stockholder’s equity/ending common shares outstanding