Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 3, 2018, are available Connect. This material also is available under the Investor Relations link at the company’s website (www.target.com). 

Required: 

1. Target’s Consolidated Statement of Financial Position (its balance sheet) discloses its current assets and current liabilities. 

a. What are the three components of Target’s current liabilities? 

b. Are current assets sufficient to cover current liabilities? What is the current ratio for the year ended February 3, 2018? How does the ratio compare with the prior year? 

c. Why might a company want to avoid having its current ratio be too low? Too high? 

2. Disclosure Note 2 discusses Target’s accounting for gift card sales. Disclosure Note 18 indicates the amount of gift card liability that is recognized in Target’s balance sheet. 

a. By how much did Target’s gift card liability change between February 3, 2018, and January 28, 2017? 

b. How would the following affect Target’s gift card liability (indicate “increase,” “decrease,” or “no change” for each): 

i. Sale of a gift card 

ii. Redemption of a gift card (the holder using it to acquire goods or services) 

iii. Increase in breakage estimated for gift cards already sold 

3. Disclosure Note 19 discusses Target’s accounting for contingencies. What is Target’s approach for accruing losses for litigation liabilities? Is their approach appropriate?