At fiscal year-end February 2, 2008, Target Corporation had the following assets and liabilities on its balance

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At fiscal year-end February 2, 2008, Target Corporation had the following assets and liabilities on its balance sheet (in millions):

Current liabilities......$11,782

Long-term debt.......15,126

Other liabilities..........2,345

Total assets..........44,560

Target reported the following information on leases in the notes to the financial statements:

Total rent expense was $165 million in 2007, $158 million in 2006, and $154 million in 2005, including percentage rent expense of $5 million in 2007, 2006, and 2005. Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term one to more than fifty years. Certain leases also include options to purchase the leased property. Future minimum lease payments required under non-cancellable lease agreements existing at February 2, 2008, were:


At fiscal year-end February 2, 2008, Target Corporation had the


(a) Total contractual lease payments include $1,721 million related to options to extend lease terms that are reasonably assured of being exercised, and also include $98 million of legally binding minimum lease payments for stores that will open in 2008 or later.
(b) Calculated using the interest rate at inception for each lease.
(c) Includes current portion of $4 million.
Required:
Your friend, Liz, loves to shop at Target and is now interested in investing in the company. Tom, another friend of Liz, has told her that Target's debt structure is risky with obligations nearly 74% of total assets. Liz sees that debt on the balance sheet is 65% of total assets and is confused by Tom's comment. Write an explanation to Liz discussing the debt structure of Target and why Tom thinks Target is risky. Be sure to explain clearly to Liz what information appears on financial statements, as well as what information does not appear directly on the financialstatements.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  answer-question

Understanding financial statements

ISBN: 978-0136086246

9th Edition

Authors: Lyn M. Fraser, Aileen Ormiston

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