Question

Fey Enterprises recorded a restructuring charge of $16.2 million during fiscal 2016 related entirely to the closing of its division located in Denver, Colorado. The company's financial statement footnotes indicated that expected employee separation payments amounted to $12.6 million and that fixed asset write-downs accounted for the remainder. Nickolas had never before incurred restructuring charges. At the end of the year, the company's balance sheet included a restructuring accrual of $2,700,000.

The cash flow effect of Fey Enterprises' restructuring during fiscal 2016 is:

(A) $-0- (there was no cash flow effect in 2016)
(B) $13,200,000
(C) $16,800,000
(D) $ 9,900,000
(E) $21,600,000

Answer 1

Answer:The cash flow effect of Fey Enterprises’ restructuring during fiscal 2016 is: $9,900,000

Explanation:

The total restructuring charge accrued = $16.2 million this is so as asset write-downs are not accrued. This in term states that there is no credit to a liability account for write-downs, the assets are credited (reduced).  

Therefore,

The company paid the amount = $12,600,000 - $2,700,000 = $9,900,000 during cash during fiscal 2016.

Therefore, the correct option is (d)