Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 6

Benefits of a quasi-reorganization. Barber Technologies designs and develops software to be used for the management of inventory by both retailers and manufacturing firms. Over the past three years, the company has experienced significant competition and a declining market resulting in a significant deficit in retained earnings. In response to this condition, you have suggested that management consider the following:
a. Recognize all asset impairments.
b. Restructure the long-term debt by committing to make future payments that are less than the basis of the original debt.
c. Adjust the par value of common stock to eliminate the deficit in retained earnings.
Discuss how the above actions will likely affect:
1. The current ratio, debt-to-equity ratio, and return on equity.
2. The determination of net income in subsequent periods.