42 Rite Aid Corporation-Long-Term Debt lores in 31 states, Rite Aid is the third largest retail pharmacy in the U.S. The company is mumber one 4fof ch markets where it operates. In fiscal 2009, Rite Aid pharmacists filled more than 500 million bao er nich accounted or nearly 68% o ndise including over-the-counter medications, health and beauty aids, household isems, beverages foods, greeting cards, seasonal merchandise, as well as photo processing The company also offers total sales. In addition Rite Aid stores sell a wide assortment of other m ter the Rite Aid private brand (Source Compary 2009 Fom 10- 3.300 ng Objectives robe debt disclosures to understand long-term debt accounting and debt reporting roquirements Understand discounts and premiums associated with long-term debt. Calculate and interpret common debt-related ratios. Understand factors impacting a company's credit rating. Refer to the 2009 Rite Aid Corporation financial statements (i.c., the fiscal year ended February 27,2010) Concepts a. Consider the various types of debt described in note 11, Indebtedness and Credit Agreement Explain the difference between Rite Aid's secured and unsccured debt. Why does Rite Aid distinguish between these two types of debt? i. i. What does it mean for debt to be "guaranteed"? According to note 11, who has provided guarantee for some of Rite Aid's unsecured debt? ii What is meant by the terms "senior," "fixed-rate," and "convertible"? iv. Speculate as to why Rite Aid has many different types of debt with a range of interest rates Process b. Consider note 11, Indebtedness and Credit Agreement. How much total debt does Rite Aid have at February 27, 2010? How much of this is due within the coming fiscal year? Reconcile the total debt reported in note 11 with what Rite Aid reports on its balance sheet. Consider the 7.5% senior secured notes due March 2017. c. i. What is the face value (i.e. the principal) of these notes? How do you know? i. Prepare the journal entry that Rite Aid must have made when these notes were issucd. ii. Prepare the annual interest expense journal entry. Note that the interest paid on a note during the year equals the face value of the note times the stated rate (i.e.,coupon rate) of the note. . Prepare the journal entry that Rite Aid will make when these notes Consider the 9.375% senior notes due December 2015, Assume that interest is paid annually i. What is the face value (or principal) of these notes? What is the carrying value (net book value) d of these notes at February 27, 2010? Why do the two values differ? i How much interest did Rite Aid pay on these notes during the fiscal 200? Determine the total amount of interest expense recorded by Rite Aid on these notes for the year ended February 27, 2010. Note that there is a cash and a noncash portion to interest expense on these notes because they were issued at a discount. The noncash portion of interest expense is ae withous the wrimen permission of the publisher 42 Rite Aid Corporation-Long-Term Debt lores in 31 states, Rite Aid is the third largest retail pharmacy in the U.S. The company is mumber one 4fof ch markets where it operates. In fiscal 2009, Rite Aid pharmacists filled more than 500 million bao er nich accounted or nearly 68% o ndise including over-the-counter medications, health and beauty aids, household isems, beverages foods, greeting cards, seasonal merchandise, as well as photo processing The company also offers total sales. In addition Rite Aid stores sell a wide assortment of other m ter the Rite Aid private brand (Source Compary 2009 Fom 10- 3.300 ng Objectives robe debt disclosures to understand long-term debt accounting and debt reporting roquirements Understand discounts and premiums associated with long-term debt. Calculate and interpret common debt-related ratios. Understand factors impacting a company's credit rating. Refer to the 2009 Rite Aid Corporation financial statements (i.c., the fiscal year ended February 27,2010) Concepts a. Consider the various types of debt described in note 11, Indebtedness and Credit Agreement Explain the difference between Rite Aid's secured and unsccured debt. Why does Rite Aid distinguish between these two types of debt? i. i. What does it mean for debt to be "guaranteed"? According to note 11, who has provided guarantee for some of Rite Aid's unsecured debt? ii What is meant by the terms "senior," "fixed-rate," and "convertible"? iv. Speculate as to why Rite Aid has many different types of debt with a range of interest rates Process b. Consider note 11, Indebtedness and Credit Agreement. How much total debt does Rite Aid have at February 27, 2010? How much of this is due within the coming fiscal year? Reconcile the total debt reported in note 11 with what Rite Aid reports on its balance sheet. Consider the 7.5% senior secured notes due March 2017. c. i. What is the face value (i.e. the principal) of these notes? How do you know? i. Prepare the journal entry that Rite Aid must have made when these notes were issucd. ii. Prepare the annual interest expense journal entry. Note that the interest paid on a note during the year equals the face value of the note times the stated rate (i.e.,coupon rate) of the note. . Prepare the journal entry that Rite Aid will make when these notes Consider the 9.375% senior notes due December 2015, Assume that interest is paid annually i. What is the face value (or principal) of these notes? What is the carrying value (net book value) d of these notes at February 27, 2010? Why do the two values differ? i How much interest did Rite Aid pay on these notes during the fiscal 200? Determine the total amount of interest expense recorded by Rite Aid on these notes for the year ended February 27, 2010. Note that there is a cash and a noncash portion to interest expense on these notes because they were issued at a discount. The noncash portion of interest expense is ae withous the wrimen permission of the publisher