- Problem 4: - Subic Co. has suffered substantial operating losses for several years. - The entity's ability to service debts and pay operating expenses has been impaired. - Consequently, the owners, and creditors have decided to execute a quasi- reorganization. - The statement of financial position of the company prior to the reorganization is as follows: - The entity provided the following information in relation to the quasi-reorganization: - 1. An independent appraisal of the entity's inventory reveals goods with carrying amount of P150,000 to be obsolete and worthless. - 2. Equipment costing P2,000,000 and with accumulated depreciation of P1,200,000 is expected to be sold for P300,000. However, the holder of the note payable agrees to accept the equipment in full satisfaction of the note. - 3. The goodwill is to be written off as loss. - 4.The mortgage holder agrees to accept 40,000 new preference shares with P100 par value in satisfaction of the liability. - 5.The par value of the ordinary shares is reduced to P20. - 6. The resulting deficit is offset against the share premium. - Required: - a. Prepare journal entries to give effect to the quasi-reorganization. - b. Prepare a statement of financial position immediately after the reorganization