Exercise 15-20

The condensed balance sheets of Pina Colada Limited, a small private company that follows ASPE, follow for the periods immediately before, and one year after, it had completed a financial reorganization:

		Before Reorganization				One Year After				Before Reorganization				One Year After
Current assets			$310,000			$430,000		Common shares			$2,410,000			$1,550,000
Buildings (net)			1,700,000			1,280,000		Contributed surplus			220,000
								(Deficit) retained earnings			(620,000	)		160,000
			$2,010,000			$1,710,000					$2,010,000			$1,710,000

For the year following the financial reorganization, the company reported net income of $187,000 and depreciation expense of $80,000, and paid a cash dividend of $27,000. As part of the reorganization, the company wrote down inventory by $120,000 in order to reflect circumstances that existed before the reorganization. Also, the deficit, and any revaluation adjustment, was accounted for by charging amounts against contributed surplus until it was eliminated, with any remaining amount being charged against common shares. The common shares are widely held and there is no controlling interest. No purchases or sales of plant assets and no share transactions occurred in the year following the reorganization.

Prepare all the journal entries made at the time of the reorganization.

Account Titles and Explanation	Debit	Credit
Retained Earnings
Inventory
Buildings
(To record impairment of assets that existed before reorganization)
Common Shares
Contributed Surplus
Retained Earnings
(To eliminate deficit)