Restructuring debt and pensions Week 4 Acc545 UoP (PERFECT A+)

With the following information for Jamona Corp. please complete the following sections: 

1. Debt Restructuring
2. Pensions

All the information you need to compete this assignment is included.

You must utilize the attached excel worksheet to complete

• Do not significantly alter the formatting of the spreadsheet
• Do not delete tabs or columns
• Do not change column headers or descriptions
• Do not alter formatting, shading or colors
• Although I have provided enough lines for entries you may add rows
• Use the tab called "Work" for calculations (optional - not graded)

Submit the worksheet as your completed assignment.

SECTION 1 - DEBT RESTRUCTURING

Your company is in financial trouble and is in the process of reorganizing. Your manager wants to know how you will report on restructuring the debt. Use the following information to help with this assignment.

This is the liability section of your company's balance sheet:
 

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

Your company has asked the bank to settle 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. There is not outstanding interest due on this note.

For working capital your company has issued $1,500,000 in new bonds. The bonds have a stated 10% coupon rate with 5 annual interest payments of $150,000 due at the end of each year. At the time of issuance they were discounted to yield 12% to the investors, and your company will receive this discounted amount in cash.

Date the extinguishment and new issuance as completed 1/1/2007.

Deliverables:

In the attached Excel Worksheet complete the following:

1(a) Complete the journal entries for the extinguishment of debt

1(b) Calculate amounts for the new debt issuance and complete the amortization schedule

1(c) Complete the journal entries for the new debt issuance and first interest payment

SECTION 2 - PENSIONS

The company provides the following information related to its postemployment 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

To satisfy various benefit issues that have arisen as a result of the restructuring, new postemployment benefits have been created. The company currently has a defined benefits plan and is considering switching to a defined contribution plan to save costs. Management is asking for 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.

Deliverables:

2(a) In the attached Excel Worksheet, calculate the current annual pension expense.

2(b) Calculate the breakeven payroll amount if management switched to a defined contribution plan and contributed 3% of payroll. In other words, what is the annual payroll level where a 3% fixed contribution equal to the amount calculated in 2(a) above?

This is the form that will be used to grade your assignment:

 

Criteria	Points	%
1(a) Correct journal entries for extinguishment of debt	20.0	20%
1(b) Correct calculation of new debt and amortization schedule	20.0	20%
1(c) Correct journal entries for new bond and year-end interest payment	20.0	20%
2(a) Correct calculation of defined benefit pension expense	20.0	20%
2(b) Correct calculation of breakeven payroll for defined contribution plan	15.0	15%
CONTENT	95.0	95%
Utilizes provided layout correctly	5.0	5%
MECHANICS	5.0	5%
TOTAL ASSIGNMENT	100.0	100%