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Individual Assignment: Restructuring Debt...




Individual Assignment: Restructuring Debt ? Your company is in financial trouble and is in the process of reorganization. Your manager wants to know how you will report on restructuring the debt. Use the following information to help with this assignment. Part A ASSETS CURRENT ASSETS Cash and cash equivalents $ 108,340 Trade accounts receivable, net of allowances 2,866,260 Other receivables 62,150 Operating supplies, at lower of average cost or market 58,630 Prepaid expenses 446,050 Total Current Assets 3,541,430 PROPERTY, PLANT AND EQUIPMENT (at cost) Land 1,950,000 Buildings and improvements 2,327,410 Equipment 5,015,660 Other equipment and leasehold improvements 1,645,580 total 10,938,650 Accumulated depreciation and amortization (7,644,430) Net Property, Plant, and Equipment 3,294,220 OTHER ASSETS Deposits and other assets 1,000,080 TOTAL ASSETS $ 7,835,730 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 972,160 Accrued liabilities 2,071,270 Accrued claims costs 793,620 Federal and other income taxes 19,710 Deferred income taxes 500 Current maturities of long-term debt and capital lease obligations 50,610 Short-term borrowings 249,250 Total Current Liabilities 4,157,120 LONG-TERM LIABILITIES Capital lease obligation 54,580 Note Outstanding 3,000,000 Mortgage Outstanding 608,030 Other liabilities 95,860 Total Long-term Liabilities 3,758,470 Total Liabilities 7,915,590 SHAREHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value; authorized 500,000 shares; issued 231,000 shares 2,310 Additional paid-in capital 731,090 Accumulated other comprehensive loss (113,500) Retained earnings (deficit) (639,180) Treasury stock (60,580) Total Shareholders' Equity (Deficit) (79,860) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,835,730 Part B ? As stipulated, your company is having financial difficulty and has asked the bank to restructure its $3 million note outstanding. The present note has 3 years remaining and pays a current interest rate of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value. The bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of $1,950,000 and a fair value of $2,400,000. ? The company provides the following information related to its post employment benefits for the year 2007: o Accumulated postretirement benefit obligation at January 1, 2007 $810,000 o Actual and expected return on plan assets $34,000 o Unrecognized prior service cost amortization $21,000 o Discount rate 10% o Service cost $88,000 ? Part A ? Provide your manager a comparison of the current reporting for debt, explaining the requirements for each type (bond, mortgage, capital lease, and others). Then, prepare the journal entries for the restructuring. ? Part B ? To satisfy various benefit issues that have arisen as a result of the restructuring, new post employment benefits have been created. The company currently has a defined benefits plan and is considering switching to a defined contribution plan to save costs. Compute the costs associated with keeping the current plan versus the costs of a defined contribution plan where the employer pays 3% of payroll. The agreement is that the employees get to keep what is already in the defined benefit plan. This prevents the situation of having to compute how much the company would recapture in surplus assets resulting from terminating the old plan. Then, compute a new post employment benefit expense for 2007 and report this to your manager. Illustrate with schedules and notes.


Paper#7582 | Written in 18-Jul-2015

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