ACC 545 Week 4 Individual Assignment Restructuring Debt

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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:

oAccumulated postretirement benefit obligation at January 1, 2007 $810,000

oActual and expected return on plan assets $34,000

oUnrecognized prior service cost amortization $21,000

oDiscount rate 10%

oService 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.

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    ACC 545 Week 4 Individual Assignment Restructuring Debt
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