Rite Aid Financial Reporting Case Long Term Debt Essay

1312 Words Nov 25th, 2015 6 Pages
Long-Term Debt
Concepts
A.
i. Secured debt of Rite-Aid is backed by and tied to specific assets of the corporation while unsecured debt is based on their credit-worthiness to pay this debt. Distinguishing between secured/unsecured debts provides needed information to investors, credit rating agencies, and lenders. ii. Guaranteed means a promise to answer for payment of debt or performance of some obligation if the entity liable fails to perform. Rite-Aid's wholly owned subsidiaries guarantee the debt. iii. Senior denotes the debt holders that have the highest rights of priority if a firm falls into bankruptcy. Fixed-rate is the term the means the interest rate remains constant over the term of the debt.
Convertible is a type
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Each period until maturity, the increase in the amount of interest expense represents amortization using the effective interest method of the difference between the initial value of the loan and the maturity value.

ii. Interest payment = face value * coupon rate interest payment = $410,000,000*0.09375 = $38,437,500

iii. 2010 Balance – 2009 Balance = $405,951,000 - $405,246,000 = $705,000 Interest Expense = Interest payment + change in carrying value = $38,437,500 + $705,000 Total Interest Expense = $39,187,500 Cash portion = $38,437,500 and the noncash portion to Notes Payable is $705,000[

iv. Dr Interest Expense $39,187,500 Cr Notes Payable $705,000 Cr Cash $38,437,500`

v. Interest rate = Interest Expense (FY2009)/Beg Yr Balance (FY2009) Interest rate = $39,187,500/$405,246,000 Interest rate = 9.67%

e.

i. June 30, 2009 Dr Cash $402,620 Dr Bonds Payable $402,620

ii. Effective annual interest rate is 10.1212%

iii. ON SPREADSHEET (last page) iv. 8 months interest expense - Feb 27th, 2010 Dr Interest Expense $27,167 Cr Cash $26,650 Cr Bonds Payable $ 517

v. Net Book Value - Feb 27th, 2010 = $402620 + $517 = $403,137

vi. ON SPREADSHEET (last page) vii. The interest expense increases with the effective interest method over time, whereas the straight method remains constant as

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