Corizon Company\'s balance sheet and income statement are shown below (in millio

Question

Corizon Company's balance sheet and income statement are shown below (in millions of dollars). Corizon and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $5 preferred will be exchanged for one share of $2.00 preferred with a par value of $60 plus one 10% subordinated income debenture with a par value of $60. The $8 preferred issue will be retired with cash. The company's tax rate is 40%.

175

construct the pro forma balance sheet after the reorganization takes place. show the new preferred at its par value.

CURRENT ASSETS 200 CURRENT LIABILITIES

175

NET FIXED ASSETS 225 ADVANCE PAYMENTS 10 $5 PREFFERED STOCK, $100 PAR VALUE (1,000,000) shares 100 $8 preferre stock, no par, callable at 100 (80,000 shares 8 common stock, $1.00 par value (5,000,000) shares 25 retained earnings 107 total assets 425 total claims 425

Explanation / Answer

current Assets 192 Current Liability 175

Fixed Assets 225 Advance Payment 10

$2 preferred Stock

par value $ 60 60

10% Debenture 60

Common Stock 25

Retained Earning 87

417 417

Calculation of Retained Earnings = 107 - (60+60 - 100) = 87

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