Reference no: EM132740150

Milan Corporation is under protection of the bankruptcy court and has the following account balances at June 30, 2014:

CashP (5,000)

Accounts payable  P 450,000

Accounts receivable  320,000

Notes payable  605,000

Inventory  450,000

Taxes and wages 60,000

Equipmen  t860,000

Mortgage payable 150,000

Accumulated Depreciation(525,000)

Ordinary shares50,000 Intangibles80,000

Accumulated profits  (135,000)

Total        P1,180,000

Total        P1,180,000

The court has accepted the following proposed settlement of the company's affairs:

write down the assets by the following amounts:

Accounts receivableP 40,000

Inventory160,000

Intangibles80,000

• The trade creditors (accounts payable) will reduce their claim by 30%, will accept one-year notes for 50%, and retain their current claim for the remaining 20%. The tax, wage, and mortgage claims will remain unchanged. The current ordinary shares will be surrendered to the corporation and cancelled. In consideration thereof, the current shareholders shall be held harmless from any possible personal liability. The current holder of the note payable shall receive 1,000 shares of no par ordinary shares in full satisfaction of the note payable. After these adjustments have been made, the Accumulated Profits and Losses shall be raised to zero by a charge against invested capital.

Problem 1: How much is the total shareholders' equity after the quasi-reorganization?

Option 1: P375,000
Option 2: P325,000
Option 3: P350,000
Option 4: P400,000