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):

 a. Severance payments to reduce work force $ 9 million 

b. Write-down of inventory $13 million 

c. Penalty payment for termination of lease on manufacturing facility $ 6 million 

d. Write-down of equipment associated with manufacturing facility $12 million ​ Total 2010 restructuring charge $40 million 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: 

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.

Answer rating: 100% (QA)

ITEMS WHICH DOESNT COVER UNDER THE CASH PAYMENT b Writedown of inventory 13 mill... View the full answer