Carrol, Inc., accomplished a quasi‐reorganization effective December 31, 2017. Immediately before the quasi‐reorganization, the stockholders' equity was as follows:
Common Stock, Par Value................................$10 per Share
Authorized issued and outstanding $4,000,000......400,000 shares
Additional paid‐in capital........................................ 600,000
Retained earnings (deficit)..................................... (900,000)
Under the terms of the quasi‐reorganization, the par value of the common stock was reduced from $10 per share to $5 per share, and equipment was written down by $1.2 million.
Required:
Discuss the accounting treatment necessary to accomplish this quasi‐reorganization.