Peltzer Manufacturing is experiencing financial difficulties

Rather than entering into #6284

Peltzer Manufacturing is experiencing financial difficulties. Rather than entering into a lengthy
bankruptcy proceeding, the company has reached an agreement with its long-term creditors to
restructure various loans. The restructured loans are described below.Loan A-This 12% debt
has a principal balance of $4,000,000 and accrued interest of $80,000. Under the restructuring
agreement, $500,000 of debt would be forgiven, and the balance of the amounts due would be
refinanced at a rate of 10% with monthly installment payments of $50,000 and a term of eight
years. Assets with a net realizable value of $2,500,000 would also be pledged as additional
security against the restructured loan.Loan B-This debt has a principal balance of $1,000,000
and accrued interest of $25,000. Under the restructuring agreement, the accrued interest would
be forgiven, and the principal amount would be exchanged for preferred stock with a par value
of $500,000 and a fair value of $900,000.Loan C-This 12% debt has a principal balance of
$2,000,000 and accrued interest of $37,500. Under the restructuring agreement, the creditor
would receive a parcel of land with a book value of $200,000 and a fair value of $250,000. The
remaining unpaid balance would be refinanced over five years at a 9% interest rate. Installment
payments would be on a quarterly basis.1. Determine the total quarterly cash outflows that will
be required by Peltzer's debt restructuring.2. Covering the first quarter subsequent to
restructuring, prepare a schedule that compares the effect on Peltzer's net income of
accounting for the restructuring as part of a formal bankruptcy filing versus it not being part of
such a filing.View Solution:
Peltzer Manufacturing is experiencing financial difficulties Rather than entering into

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