ATC 10-1 Business Applications Case: Understanding Real-World Annual Reports

Accounting for Long-Term Debt

ATC 10-1 Business Applications Case: Understanding Real-World Annual Reports

Instructions: Obtain the Target Corporation’s annual report at Target Investor Relations following the instructions in Appendix B, and use it to answer the following questions:

Required
a. What was the average interest rate on Target’s long-term debt in the fiscal year ended January 28, 2017 (2016)?
b. Target has an “unsecured revolving credit facility” (i.e., a line of credit). What is the total amount of credit available under this facility? How much of this total amount available had Target used as of January 28, 2017?
c. Target’s balance sheet shows a line titled “Other noncurrent liabilities.” What are the types of debt included in this category?

ATC 10-2 Group Assignment: Missing Information

The following three companies issued the following bonds:

1. Carr, Inc. issued $100,000 of 8 percent, five-year bonds at 102¼ on January 1, 2016. Interest is payable annually on December 31.
2. Kim, Inc. issued $100,000 of 8 percent, five-year bonds at 98 on January 1, 2016. Interest is payable annually on December 31.
3. Jay, Inc. issued $100,000 of 8 percent, five-year bonds at 104 on January 1, 2016. Interest is payable annually on December 31.

Required

a. Organize the class into three sections and divide each section into groups of three to five students. Assign each of the sections one of the companies.

Group Tasks

1. Compute the following amounts for your company (use straight-line amortization):

   • (a) Cash proceeds from the bond issue
   • (b) Interest paid in 2016
   • (c) Interest expense for 2016

2. Prepare the liabilities section of the balance sheet as of December 31, 2016.

Class Discussion

b. Have a representative of each section put the liabilities section for its company on the board.
c. Is the amount of interest expense different for the three companies? Why or why not?
d. Is the amount of interest paid different for each of the companies? Why or why not?
e. Is the amount of total liabilities different for each of the companies? Why or why not?