Analyzes the proposed restructuring against the goals set

Assignment Help Managerial Accounting
Reference no: EM13950302

Restructuring  versus  liquidation.  Atoyo  Fabricating,  Inc.,  has not been able to service its debts adequately. The company is a family business that has been in existence for 35 years. The shareholders want to avoid liquidating the business and are seeking your help in formulating a plan of reorganization which:

a. Provides creditors with at least as much consideration as, if not more than, they would receive if the company were liquidated.

b. Does not require monthly debt service in excess of $75,000.

Information regarding the various creditor claims and possible restructuring parameters is as follows:

a. Accounts payable due vendors total $134,000. Terms are generally 2/10 net 30, and virtually all accounts are past due. Vendors with balances of $40,000 due have indicated that in satis- faction of the amount due, they would accept equal monthly installment payments bearing no less than 12% and not exceeding three months in duration. These vendors have secured their claims with inventory that has a book value and net realizable value of $55,000 and $42,000, respectively. Vendors with a balance due of $74,000 have a secured interest in inventory with a book value of $60,000 and a net realizable value of $46,000. These vendors would accept three monthly installment payments of $20,000 including interest at the rate of 12% in satisfaction of the amount due. The remaining payables represent unsecured amounts that would be paid $3,000 per month for the next ?ve months including interest at 12%.

b. The equipment note has a balance due of $320,000 plus accrued interest of $18,000. Equipment with a book value of $280,000 and a net realizable value of $325,000 serves as collateral for this loan. The original loan had an interest rate of 11% and a remaining term of 30 months. The creditor will not agree to a change in the interest rate but will accept a revised term of 36 to 42 months in exchange for a personal guarantee of the amount due by each of the shareholders of record.

c. The note due a shareholder in the amount of $20,000 is secured by the cash surrender value of an insurance policy in the amount of $15,000 and is payable on demand. The shareholder would accept four semiannual payments, including interest at 12%, if the present value of these payments is equal to 120% of what would have been received if the company had been liquidated.

d. The mortgage payable of $420,000 plus accrued interest of $28,000 is fully secured by real estate with a book value of $310,000 and a net realizable value of $460,000. The original mortgage has a remaining term of 334 months and an interest rate of 9%. The mortgage company would agree to a restructuring of 360 months and an interest rate of 11%.

e. All other creditors totaling $160,000 are unsecured without priority. Management would like to propose that these creditors receive monthly payments over the next eight months with interest at 12%. The net present value of these payments should equal 110% of what would have been received had the company been liquidated.

The book values and net realizable values of the company's assets are as follows:


Book Value

Net Realizable Value

Cash and cash equivalents

$ 5,000

$ 5,000

Accounts receivable (net)






Equipment (net)



Real property (net)



Cash surrender values



Licensing agreement



Furniture and ?xtures






Prepare a schedule that analyzes the proposed restructuring against the goals set by management.

Reference no: EM13950302

What is meant by the best-fitting line

What is meant by the "best-fitting line"? Is the best-fitting line necessarily a good-fitting line? Explain. Describe what is meant by "goodness of fit." Explain the m

During the month, it completed the following transactions

Plum Corporation began the month of May with $ 700,000 of current assets, a current ratio of 2.50:1, and an acid test ratio of 1.10:1. During the month, it completed the follo

Calculate the material costs per unit of a special motor

Calculate the material costs per unit of a special motor for alternative order quantities between 1 unit and 1,000 units! Please apply on the one hand the surcharge rate cal

Utilization of managerial accounting in operational planning

Rebecca owns several successful coffeehouses. Each one has its own manger and is operated independently of the others. In what ways do the coffeehouses utilize managerial acco

Which of the following does not represent a cash flow

Which of the following would not be a component of cash flows from investing activities? a. Sale of land. b. Purchase of securities. c. Purchase of equipment. d. Dividends pai

How much is hesss break even point

Which country does the text describe as becoming the largest producer and consumer of many of the world's goods - sells a single product with a contribution margin of $12 per

Reconstructing standard-cost information

Part of your company's accounting database was destroyed when Godzilla attacked the city. You have been able to gather the following data from your files. Reconstruct the re

Calculate expected profit and rate of return on investment

Calculate the expected profit and rate of return on investment for each division and for the company as a whole in the coming year, if Division B purchases its motors from D


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd