12. Inventory (NOTE 12)

The vast majority of our inventory is accounted for under the retail inventory accounting method (RIM) using the last-

in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. The cost of our inventory includes

the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product

to our distribution centers and stores, and import costs, reduced by vendor income and cash discounts. The majority

of our distribution center operating costs, including compensation and benefits, are expensed in the period incurred.

Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated

based on inventory levels, markup rates, and internally measured retail price indices.

Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the

inventory retail value. RIM is an averaging method that has been widely used in the retail industry due to its practicality.

The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are

taken as a reduction of the retail value of inventory.

We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the

merchandise is ultimately sold to a guest. Activity under this program is included in sales and cost of sales in the

Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory

in our Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this

inventory. Sales made under these arrangements totaled $2,202 million, $2,261 million, and $2,040 million in 2016,

2015, and 2014, respectively.

F7. Refer to Target's financial statements for the year ended January 30, 2016. Note 12 provides information on Target's inventories. What methods does Target use to report most of its inventories? If Target changed that method to another method, what are the steps Target would take to account for and report the change?

F8. Suppose that Target uses FIFO costing method but decided to change to the LIFO method. What are the steps Target would take to account for and report the change?

January 28, 2017 January 30, 2016 (millions, except footnotes) Assets Cash and cash equivalents, including short-term investments of $1,110 and $3,008 $ Inventory Assets of discontinued operations Other current assets 2,512 $ 8,309 69 1,100 11,990 4,046 8,601 322 1,161 14,130 Total current assets Property and equipment 6,106 27,611 5,503 2,651 200 Land 6,125 27,059 5,347 2,617 315 (17,413) (16,246) 25,217 75 840 $ 37,431 $ 40,262 Buildings and improvements Fixtures and equipment Computer hardware and software Construction-in-progress Accumulated depreciation Property and equipment, net Noncurrent assets of discontinued operations Other noncurrent assets Total assets Liabilities and shareholders' investment Accounts payable Accrued and other current liabilities Current portion of long-term debt and other borrowings Liabilities of discontinued operations 24,658 12 7,252 $ 3,737 1,718 7,418 4,236 815 153 12,622 11,945 823 18 1,897 14,683 Total current liabilities Long-term debt and other borrowings Deferred income taxes Noncurrent liabilities of discontinued operations Other noncurrent liabilities 12,708 11,031 861 1,860 13,770 Total noncurrent liabilities Shareholders' investment Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss 46 5,661 5,884 50 5,348 8,188 Pension and other benefit liabilities (601) (37) 10,953 (588) Currency translation adjustment and cash flow hedges Total shareholders' investment 12,957 $37,431 $ 40,262 Total liabilities and shareholders' investment