Penny Corp Penny Corp

Penny Corp.manufactures telecommunication equipment and has been profitable each year for the past ten years.During 2014 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):
$$\begin{array} { l l l } \text { a. } & \text { Severance payments to reduce work force } & \$ 9 \text { million } \\\text { b. } & \text { Write-down of inventory } & \$ 13 \text { million } \\\text { c. } & \text { Penalty payment for termination of lease on manufacturing facility } & \$ 6 \text { million } \\\text { d. } & \text { Write-down of equipment associated with manufacturing facility } & \$ 12 \text { million } \\& \text { Total } 2010 \text { restructuring charge } & \$ 40 \text { million }\end{array}$$
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.Discuss whether or not you would eliminate the restructuring charge from the 2010 income statement of Penny Corp.when using earnings to forecast future profitability.
2.Penny Corp.'s restructuring charges cover a wide range of different cost categories,identify those that entail a cash payment and those that do not require a cash payment.For those charges not requiring a cash payment how would they be treated in the Statement of Cash Flows?

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