Wayne Corporation, a manufacturer of farm machinery, had poor financial results last year because of a drought. Back orders indicate complete recovery this year. To eliminate a deficit that increased when the books were closed at the end of last year, the corporation has received stockholders' and state approval to conduct a quasi-reorganization on January 2.
Required:
Prepare journal entries as of January 2 to record the quasi-reorganization and the stockholders' equity section of its balance sheet immediately thereafter. The following data are pertinent:
a.Inventory at year-end is shown at FIFO cost of $280,000. Inventory is to be valued at replacement cost of $250,000.
b.Property, plant, and equipment are shown in the records at $4,000,000, net of accumulated depreciation. They are to be written down to fair value of $3,100,000.
c.Stockholders' equity consists of: Par value of stock is to be reduced from $10 to $1 per share. Paid-in capital related to the former stock is to be canceled.
d.The deficit is to be eliminated.

Question

Wayne Corporation, a manufacturer of farm machinery, had poor financial results last year because of a drought. Back orders indicate complete recovery this year. To eliminate a deficit that increased when the books were closed at the end of last year, the corporation has received stockholders' and state approval to conduct a quasi-reorganization on January 2.
Required:
Prepare journal entries as of January 2 to record the quasi-reorganization and the stockholders' equity section of its balance sheet immediately thereafter. The following data are pertinent:
a.Inventory at year-end is shown at FIFO cost of $280,000. Inventory is to be valued at replacement cost of $250,000.
b.Property, plant, and equipment are shown in the records at $4,000,000, net of accumulated depreciation. They are to be written down to fair value of $3,100,000.
c.Stockholders' equity consists of:  Par value of stock is to be reduced from $10 to $1 per share. Paid-in capital related to the former stock is to be canceled. 
d.The deficit is to be eliminated.

Quizplus · Accepted Answer

The Answer of Wayne Corporation, a manufacturer of farm machinery, had poor financial results last year because of a drought. Back orders indicate complete recovery this year. To eliminate a deficit that increased when the books were closed at the end of last year, the corporation has received stockholders' and state approval to conduct a quasi-reorganization on January 2.
Required:
Prepare journal entries as of January 2 to record the quasi-reorganization and the stockholders' equity section of its balance sheet immediately thereafter. The following data are pertinent:
a.Inventory at year-end is shown at FIFO cost of $280,000. Inventory is to be valued at replacement cost of $250,000.
b.Property, plant, and equipment are shown in the records at $4,000,000, net of accumulated depreciation. They are to be written down to fair value of $3,100,000.
c.Stockholders' equity consists of:  Par value of stock is to be reduced from $10 to $1 per share. Paid-in capital related to the former stock is to be canceled. 
d.The deficit is to be eliminated.

Wayne Corporation, a Manufacturer of Farm Machinery, Had Poor Financial