CASE 10-12 DO WE REALLY HAVE INCOME?

The Jefferson Corporation has $20,000,000 of 10% bonds outstanding. Because of cash flow problems, the company is behind in interest payments and in contnbutions to its bonds retirement fund. The market value of the bonds has declined until it is currently only 50% of the face value of the bonds. After lengthy negotiations, the principal bondholders have agreed to exchange their bonds for preferred stock that has a current market value of