The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as follows (in millions of dollars): Balance Sheet Current Assets $300 Currnet Liabilities $40 Net Fixed Assets 200 Advance Payment by customers 80 Noncallable preferred stock, $6 coupon, $110 par value (1,000,000 shares) 110 Callable preferred stock, $10 coupon, no par, $100 call price (200,000 shares) 200 Common stock, $2 par value (5,000,000 shares) 10 Retained earnings 60 Total Assets $500 Total liabilities & equity $500 Income Statement Net Sales $540 Operating expenses (516) Net Operating Income $24 Other Income 4 EBT $28 Taxes(25%) (7) Net Income $21 Dividends on $6 preferred (6) Dividends on $10 preferred (2) Income available to common stockholders $13 Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the non-callable preferred will be exchanged for 1 share of $2.40 preferred with a par value of $35 plus one 8% subordinated income debenture with a par value of $75. The callable preferred issue will be retired with cash generated by reducing current assets. Assume that the reorganization takes place and construct the projected balance. Show the new preferred stock at its par value. What is the value for total assets? For debt? For preferred stock? Construct the projected income statement. What is the income available to common shareholders in the proposed recapitalization? What were the total cash flows received by the non-callable preferred stockholders prior to the reorganization? What were the total cash flows to the original noncallable preferred stockholders after the reorganization?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as

follows (in millions of dollars):

Balance Sheet

Current Assets	$300	Currnet Liabilities	$40
Net Fixed Assets	200	Advance Payment by customers	80
		Noncallable preferred stock, $6 coupon, $110 par value (1,000,000 shares)	110
		Callable preferred stock, $10 coupon, no par, $100 call price (200,000 shares)	200
		Common stock, $2 par value (5,000,000 shares)	10
		Retained earnings	60

Total Assets	$500	Total liabilities & equity	$500

Income Statement

Net Sales	$540
Operating expenses	(516)
Net Operating Income	$24
Other Income	4
EBT	$28
Taxes(25%)	(7)
Net Income	$21
Dividends on $6 preferred	(6)
Dividends on $10 preferred	(2)
Income available to common stockholders	$13

Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan,

each share of the non-callable preferred will be exchanged for 1 share of $2.40 preferred

with a par value of $35 plus one 8% subordinated income debenture with a par value of $75.

The callable preferred issue will be retired with cash generated by reducing current assets.

Assume that the reorganization takes place and construct the projected balance.

Show the new preferred stock at its par value. What is the value for total assets? For

debt? For preferred stock?

Construct the projected income statement. What is the income available to common

shareholders in the proposed recapitalization?

What were the total cash flows received by the non-callable preferred stockholders

prior to the reorganization? What were the total cash flows to the original noncallable

preferred stockholders after the reorganization? What was the net inco

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