In an attempt to avoid liquidating the company the

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In an attempt to avoid liquidating the company, the management of Carter, Inc., is considering a reorganization that calls for the restructuring of $2,100,000 of debt maturing in three years and related accrued interest payable of $72,737. The restructuring agreement calls for monthly payments over the enxt 60 months, a reduction for such a refinancing would be 13%. In addition to the debt restructuring, management is proposing to reduce the par value of its common stock in order to generate enough paid-in-capital in excess of par value to absorb a $500,000 deficit in retained earnings. The present balance of paid-in capital in excess of par value is $80,000.

1. Prepare a schedule to determine the total gain resulting from the forgiveness and restructuring of debt and the amount of future interest expense assuming

(a) a nonbankruptcy approach and

(b) a bankruptcy approach to the reorganization.

2. Determine how much the par value of common stock would have to be reduced in order to absorb?

Reference no: EM13577700

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