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.

As stipulated, your company is having financial difficulty and has asked the bank to restructure its $3 million note outstanding. The present note has three 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.

ASSETS                       
 CURRENT ASSETS                   
 Cash and cash equivalents                                  $   108,340
 Trade accounts receivable, net of allowances                         2,866,260

.....(The details of the problem are presented in the attached PDF file).............

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 including a new shareholders equity section..


Part B


The company provides the following information related to its post-employment benefits for the year 2007:

•    Accumulated postretirement benefit obligation at January 1, 2007 $810,000
•    Actual and expected return on plan assets $34,000
•    Unrecognized prior service cost amortization $21,000
•    Discount rate 10%
•    Service cost $88,000



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.