Mango Juice Company has been suffering a downturn in its juice business due to adverse pub licity regarding the caffeine content of its drink products. As a result, the company has been required to restructure operations. The board of directors approved and communicated a plan on July 1, 2006, calling for the following actions.
1. Close a juice plant on October 15, 2006. Closing, equipment relocation, and employee relocation costs are expected to be $500,000 during October.
2. Eliminate 280 plant positions. A severance will be paid to the terminated employees equal to 400% of their estimated monthly earnings payable in four quarterly installments on October 15, 2006; January 15, 2007; April 15, 2007; and July 15, 2007.
3. Terminate a juice supply contract, activating a $120,000 cancellation penalty, payable upon notice of termination. The notice will be formally delivered to the supplier on August 15, 2006.
The 280 employees earn an average of $12 per hour. The average employee works 180 hours per month.
a. Determine the total restructuring charge.
b. Journalize the entry for the restructuring charge on July 1, 2006. (Note: Use Restructuring Obligation as the liability account, since the charges involve more than just employee terminations.)
c. Provide the journal entry for the October 15, 2006, employee severance payment.
d. Provide the balance sheet disclosure for December 31, 2006.
e. Provide a note disclosure for December 31, 2006.