Prepare a revised classi?ed balance sheet to re?ect

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Reference no: EM13950278

Effect of a quasi-reorganization. Marshall Tool and Die Com- pany has been experiencing signi?cant foreign competition and a declining market. Annual net losses from operations have averaged $250,000 over the last three years. The company's balance sheet as of December 31, 20X7, is as follows:

Assets		Liabilities and Equity
Cash	$ (15,000)	Accounts receivable (net)	$ 320,000
Accounts payable	500,000	7% Note payable	1,500,000
Inventory	150,000	Common stock at par	550,000
Plant and equipment (net)	1,560,000	Contributed capital in excess of par	550,000
Goodwill	150,000	Retained earnings	(300,000)
Other assets	35,000	20X7 Net income	(240,000)
Total assets	$2,380,000	Total liabilities and equity	$2,380,000

After analyzing accounts receivable and inventory, it has been determined that the allowance for uncollectibles should be increased by $75,000 and the inventory should be written down by $20,000. Based on recent appraisals, it is estimated that the plant and equipment have a market value of $900,000. The goodwill is traceable to the purchase of a small tooling company in 20X3. Based on an analysis of cash ?ows associated with that acquisition, it is estimated that the goodwill has an impaired value of $0. Other assets represent a note receivable from of?cers of the corpora- tion. The note calls for ?ve annual payments of $8,309 including interest at the rate of 6%.

In response to the current situation, the company has decided to take the following actions:

a. Record the suggested impairment in all assets.

b. Restructure the note receivable from the of?cers to re?ect four annual payments and an interest rate of 7.5%.

c. Restructure the note payable, which was due in 20X9, to provide for 12 semiannual pay- ments of $120,000 including interest at the annual rate of 6%.

d. Engage in a quasi-reorganization to eliminate the de?cit in retained earnings.

1. Prepare a revised classi?ed balance sheet to re?ect the effect of management's actions.

2. Compute the following ratios before and after management's actions: current ratio and debt-to-equity ratio.

3. Given the above ratio analysis, if the ratios do not suggest an improvement, discuss the bene- ?ts of management's actions.

Reference no: EM13950278

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