Record a quasi-reorganization. Montrose Manufacturing, Inc. has designed and built timber-harvesting equipment for over 25 years. Due to declining demand and increased foreign competition, the company has accumulated significant operating losses. The company has been able to withstand these pressures through the use of heavy debt financing. The company as just completed development of a new product line unrelated to the timber industry and it expects that significant profits will be generated over the next 5 to 10 years. Unfortunately, the income generated from this new line of business will not be available to shareholders in the form of dividends due to the large deficits traceable to prior operations.
In order to provide for dividend opportunities in the near future, the shareholders of the corporation have authorized a quasi-reorganization. A condensed balance sheet and related information prior to the reorganization is as follows:
|
Assets |
Book Value |
Fair Value |
|
Cash and cash equivalents |
$ 220,000 |
$ 220,000 |
|
Accounts receivable |
800,000 |
740,000 |
|
Inventory |
1,280,000 |
1,100,000 |
|
Other current assets |
240,000 |
280,000 |
|
Depreciable assets (net) |
4,300,000 |
3,800,000 |
|
Total assets |
$ 6,840,000 |
$6,140,000 |
|
Liabilities and Equity |
||
|
Current liabilities |
$ 1,700,000 |
|
|
Contingent liabilities |
580,000 |
$ 500,000 |
|
Other liabilities |
3,700,000 |
|
|
Common stock at par value |
1,000,000 |
|
|
Contributed capital in excess of par |
1,800,000 |
|
|
Retained earnings (deficit) |
(1,940,000) |
|
|
Total liabilities and equity |
$ 6,840,000 |
|