Anew 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 $120 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 $ 25 receivables 46 inventory 290 land 46 buildings and equipment (net) 96 $ 503 liabilities $ 291 common stock (388 million shares at $1 par) 388 paid-in capital—excess of par 90 retained earnings (deficit) (266 ) $ 503 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.

1) journal entries appropriate to record the quasi reorganization on January 1, 2019:

decrease inventory 120 and increase other expenses: 120

increase land 5 and increase other income 5

2) the balance sheet as it would appear immediately after the restatement:

Cash                                                                        $ 25

Receivables                                                             $46

Inventory                                                                $170

Land                                                                           $51

Buildings and equipment (net)                                   $96

Total Asset                                                                   $ 388

Liabilities                                                                       $ 291

Common stock (388 million shares at $1 par)             $388

Paid-in capital—excess of par                                     $90              

Retained earnings (deficit)                                            ($381 )

Total Liabilities & Equity                                              $ 388

Explanation:

the increase in other expenses and income = (120)+5 = -115, which deficit in retained earnings more, then after reorganization the retained earnings (deficit) is (381) = previous (266)+(115)