Target Corporation and Bark Company (forest products companies) need additional pulp-processing capacity. Each firm could borrow the needed funds and build its own manufacturing plant. Instead, they form a joint venture to build a pulp-processing plant. Each firm agrees to use half of the new plant's capacity each year for 20 years and to pay half of all operating and debt service costs. The
joint venture uses the purchase commitments of Target Corporation and Bark Company to obtain a loan to build the facility. The firms structure the arrangement so that neither firm controls the joint venture. Which of the following is/are true?
a. Accounting views the purchase commitments as executory contracts.
b. Neither firm will recognize a liability for its portion of the loan.
c. The loan will appear as a liability on the balance sheet of the joint venture.
d. Each firm obtains financing for the services of the plant without showing a liability on its balance sheet.
e. all of the above
E
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