Question

CASE 3–2 Analyzing and Interpreting Liabilities

Refer to the annual report of Campbell Soup Company in Appendix A.

Required:

a. Identify Campbell Soup’s major categories of liabilities. Identify which of these liabilities require recognition of interest expense.

 

b. Reconcile activity in the long-term borrowing account for Year 11.

 

c. Describe the composition of Campbell Soup’s long-term liabilities account using its note 19.

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Answer 1

Note payables:

It is an unconditionally written document which states the amount payables after a defined period with interest amount. Notes payables may be interest-bearing or non-interest-bearing. The debtor's issue it to discharge their debt at the stated future date.

Long-term Debt:

Liabilities which are payable over more than one year or accounting cycle is called long-term debt. It would result in the cash outflow or increase in other liability or decrease in the asset over more than one year.

a.

CS’s major categories of liabilities is note payable with different coupon rate.

b.

The note payable of coupon rate 13.99% is payable during year 12.

The note payable of coupon rate 9.125% is payable during year 13.

The note payable of coupon rate 10.50% is payable during year 16.

The note payable of coupon rate 7.50% and 9.00% is payable during year 18.

The note payable of coupon rate 8.58% - 8.75% is payable during year 21.

The note payable of coupon rate 8.875% is payable during year 41.

c.

CS’s composition of long-term liabilities for year 11 are as follows: -

(1) 13.99% note payable, total liabilities in these categories are $182 million. This liability requires recognition of interest expense.

(2) 9.125% note payable, total liabilities in these categories are $100.60 million. This liability requires recognition of interest expense.

(3) 10.50% note payable, total liabilities in these categories are $100.00 million. This liability requires recognition of interest expense.

(4) 7.50% note payable, total liabilities in these categories are $99.60 million. This liability requires recognition of interest expense.

(5) 9.00% note payable, total liabilities in these categories are $99.80 million. This liability requires recognition of interest expense.

(6) 8.58% note payable, total liabilities in these categories are $100.00 million. This liability requires recognition of interest expense.

(7) 8.875% note payable, total liabilities in these categories are $199.60 million. This liability requires recognition of interest expense.