Question

A new CEO was hired to revive the floundering Champion Chemical Corporation. The company had endured operating losses for several years, but confidence was emerging that better times were ahead The board of directors and shareholders approved a quasi reorganization for the corporation. The reorganization included devaluing inventory for obsolescence by $122 million and increasing land by $5 million. Immediately prior to the restatement, at December 31, 2018, Champion Chemical Corporation's balance sheet appeared as follows (in condensed form) CHAMPION CHEMICAL CORPORATION Balance Sheet At December 31, 2018 (s in millions) Cash Receivables Inventory Land Buildings and equipment (net) $ 23 50 230 50 100 Liabilities Common stock (336 million shares at $1 par) Paid-in capital-excess of par Retained earnings (deficit) $453 $ 252 336 65 (200) $ 453 Required 1. Prepare the journal entries appropriate to record the quasi reorganization on January 1, 2019 2. Prepare a balance sheet as it would appear immediately after the restatement.

Answer 1

Journal entries
Particulars				Debit	Credit
Retained earning				122000000
inventory					122000000
(to record revaluation)
Land				5000000
Retained earning					5000000
(to record revaluation)
additional paid in capital				65000000
retained earning					65000000
(to record elimination of deficit)
Common stock				252000000
retained earining					252000000
(to record elimination of deficit)
Total deficit
retained earning (debit balance)				200000000
decreace in the inventory value				122000000
increase in land value				-5000000
Total deficit				317000000
less: elinimated from additional paid in capital				-65000000
decficit eliminated from common stock				252000000
Balance Sheet
Assets				Amount	Amount
Cash					23000000
Receviables					50000000
Inventory				230000000
less: Revaluation				-122000000	108000000
Land				50000000
Add: Revaluation				5000000	55000000
Building & equipment					100000000
Total assets					336000000
Laibilties & shareholder's equity
Laibilities					252000000
Common stock (336000000*0.25)					84000000
Total Laibilities & shareholder's equity					336000000
Par value of common stock = 336000000-252000000/336000000
par value of common stock = 0.25

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