A company has 1,000 outstanding common shares with a $5/share par value, additional paid-in capital of $5,000, and a deficit of $6,500 in retained earnings. It reduces its assets by $2,000 to report them at fair value. To achieve a successful quasi-reorganization, the company must reduce the par value of its common shares by:

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The deficit increases to $8,500 after the asset write-off. Since additional paid-in capital is $5,000, the common stock account must be reduced by $3,500 to absorb the deficit. There are 1,000 shares, so par must be reduced by $3,500/1,000 = $3.50/share.

A Company Has 1,000 Outstanding Common Shares with a $5/share