Penny Corp Penny Corp $\text {Discuss whether or not you would elininate the restructuring charge from the 2010 income statement of Permy Corp. when using}$

Penny Corp. manufactures telecommunication equipment and has been profitable each year for the past ten years. During 2010 the company saw its core market decline sharply when a competitor introduced a significant new product technology. In response to the decline in business Penny Corp. announced a major restructuring of its operations. The restructuring plan which would be implemented in 2010 would involve the following changes (all of the charges are material):
$\begin{array}{llcc} \text { a. Severance payments to rechice work force } & \text { \$9 million } \\ \text { b. Write-down of inventory } &\$ 13 \text { million }\\ \text {c. Penalty payment for termination of lease on manufacturing facility } &\$ 6 \text { million }\\ \text { d. Wite-down of equipment associated with manufacturing facility } &\underline{\$ 12 \text { million } }\\ \text { Total 2010 restructuring charge } &\$ 40 \text { million }\\\end{array}$
Penny Corp. has never previously restructured its operations and believes that it can return to profitability within two years based on its current research and development activity.
Required:
1. $\text {Discuss whether or not you would elininate the restructuring charge from the 2010 income statement of Permy Corp. when using}$
$\text {earnings to forecast future profitability}$

2. $\text {Penty Corp.'s restructuring charges cover a wide range of different cost categories, iclentify those that ent ail a cash payment and thos:}$
$\text {that donot require a cash payment. For those charges not requiring a cash payment how would they be treated in the Statement of}$
$\text { Cash Flowers?}$

Correct Answer:

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