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 $106 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 ($ in millions)
Cash	$	23
Receivables		42
Inventory		234
Land		44
Buildings and equipment (net)		94
	$	437
Liabilities	$	252
Common stock (336 million shares at $1 par)		336
Paid-in capital—excess of par		69
Retained earnings (deficit)		(220	)
	$	437

Prepare the journal entries appropriate to record the quasi reorganization on January 1, 2019. Record revaluation of inventory. Record revaluation of land. Record the entry to eliminate a portion of deficit against available additional paid in capital.Record the entry to eliminate the remainder of the deficit against common stock. Prepare a balance sheet as it would appear immediately after the restatement.

Answer 1

Solution:

Champion Chemical Corporatio
Journal Entry
Date	Particulars	Debit (In Millions)	Credit (In Millions)
January 1, 2019	Retained Earnings Dr	$106.00
	To Inventory		$106.00
	(To record revaluation of Inventory)
January 1, 2019	Land Dr	$5.00
	To Retained Earnings		$5.00
	(To record revaluation of Land)
January 1, 2019	Additional paid in capital Dr	$69.00
	To Retained Earnings		$69.00
	(To eliminate a portion of deficit against available additional paid in capital)
January 1, 2019	Common Stock Dr ($220+$106-$5-$69)	$252.00
	To Retained Earnings		$252.00
	(To eliminate the remainder of the deficit against common stock)

Champion Chemical Corporatio
Balance Sheet
January 1,2019 (Immediately after the Restatement) (In Millions)
Particulars		Amount
ASSETS
Current Assets:
Cash	$23.00
Receivables	$42.00
Inventory ($234-$106)	$128.00
Total Current Assets		$193.00
Land ($44+$5)		$49.00
Building and Equipment (Net)		$94.00
Total Assets		$336.00
Liabilities and Stockholder's Equity:
Liabilities		$252.00
Stockholders' Equity:
Common Stock ($336-$252)	$84.00
Additional Paid in Capital- excess of Par	$0.00
Retained Earnings (Deficit)	$0.00
Total Stockholders' Equity		$84.00
Total Liabilities and Stockholder's Equity		$336.00