APPENDIX D GAAP Comprehensive A14. Not exp of t Case Tar for Target Corporation prepares its financial statements axcording to US. GAAP T financial statements and disclosure aotes for the year ended January 30206gers in Connect. This material is also available under the Investoe Relations link at the ny's websise (www.target.com). This case addresses a variety of characteristies of finas statements prepared using U.S. GAAP. Questions are grouped in purts according to varios sections of the textbook. Al6. On A17. Dis the AIS, Di Part A: Financial Statements, Income Measurement and Current Assets A19. Di By what name does Target label its balance sheet? What amounts did Target report for the following items on January 30, 2016? a. Current assets b. Long-term assets c. Total assets d. Current liabilities e. Long-term liabilities f. Total liabilities g Total shareholders' equity what was Target's largest current asset? What was its largest current liability? Compute Target's current ratio and debe to equity ratio in 2016? Assuming Target's industry had an average current ratio of 1 0 and an averagedett to equity ratio of 2.5, comment on Target's liquidity and long-term solvency Why do you think Target has chosen to have its fiscal year end on January 30, as opposed to December 31? Regarding Target's audit report: a. Who is Target's auditor? b. Did Target receive a "clean" (unmodified) audit opinion? By what name does Target label its income statement? What amounts did Target report for the following items for the year ended January 30, 2016? Al. A2. th A20. D A21. D A22. W A3. A4. AS, A24. V A25. D A6. A26. V A27. I A7. A28. C A8. A9. A29 A30. a Sales b. Gross margin c. Earnings from continuing operations before income taxes d. Net earnings from continuing operations e. Net earnings A31 A10. What was Target's basic earnings per share for the year ended January 30, 2016 All. What additional items, if any, does Target report as part of its comprehensive A12. Does Target prepare the statement of cash flows using the direct method or the A13. Which is higher, net earnings or operating cash flows? Which line item is the income? indirect method? reason for this difference? Explain why Part B2. 4. Note 13 provides information on GAAP Comprehensive Case APPENDIX B Al expenses are for prepaid insurance and that insurance expense comprises $50 million of the $14.665 million of Selling. general and administrative expenses reported in the income statement for the year ended January 30, 2016. How much cash di Target pay for insurance coverage during the year? Prepare the adjusting entry Target would make to record all insurance expense for the year. What would be the effect on the income statement and balance sheet if Target didn't record an adjusting entry for prepaid expenses? Target's current assets. Assume all prepaid s What are the largest investing cash flow and the largest financing cash flow repored by the company for the year ended January 30, 2016 On what line of Target's income statement is revenue reported? What was the amount of revenue Target reported for the fiscal year ended January 30. 2016 Al A17. Disclosure Note 2 indicates that Target gencrally recoreds revenue in retal stores an the point of sale. Does that suggest that Target gencrally records revenue at a point in records revenue in retail stores at losure Note 2 indicates that customers ("guests") can return some merc within 90 days of purchase and can return other merchandise within a year of How are Target's revenue and net income affected by returns, given that it A19. Disclosure Note 2 indicates that Commissions carned on sales generated by leased does not know at the time a sale is made which items will be returned? departments are included within sales and were $37 million...in 2015. . ."Do you think it likely that Target is accounting for those sales as a principal or an agent? Explain. A20. Disclosure Note 2 discusses Target's accounting for gift card sales. Does Target A21. Disclosure Note 4 discussed how Target accounts for consideration received from A22. What is Target's policy for designating investmeats as cash equivalents recognize revenue when it sells a gift card to a customer? If not, when does it recognize revenue? Explain. vendors, which they call "vendor income." Does that consideration produce revenue for Target? Does that consideration produce revenue for Target's vendors? Explain A23. What is Target's balance of cash equivalents for the fiscal year ended January 30 2016? A24, Whatis Target's policy with respect to accounting for merchandise returns? has. (Hint, see Disclosure Notes 9. 11 and 13.) A26. What inventory method(s) does Target use to value its inventories? A27. In addition to the purchase price, what additional expenditures does the company A2. Calculate the gross profit ratio and the inventory turnover ratio for the fiscal year A29. What indexes does Target use to measure the LIFO provision? include in the initial cost of merchandise? ended January 30, 2016. Compare Target's ratios with the industry averages of 24.5% and 7.1 times. A30. Why does Target feel that the retail inventory method will result in inventory being A31. How does Target account for inventory when arrangements are made with vendors valued at the lower of cost or market? whereby Target does not purchase or pay for merchandise until the merchandise is ultimately sold to a customer? B: Property, Plant, and Equipment and Intangible Assets What categories of property, plant, equipment, and intangible assets does Target report in its January 30. 2016, balance sheet? How much cash was used in the fiscal year ended January 30, 2016, to purchase property and equipment? How does this compare with purchases in previous years? Bl, ENDIX B GAAP Comprehensive Case B3. Do you think a company like Target would have significant research and B4. What is Target's fixed-asset turnover ratio for the fiscal year ended January 30 B5. Compare the property and equipment listed in the balance sheet with the list in B6. Which depreciation method does Target use for property and equipment for financial development costs or capitalized interest related to self-constructed assets? Explain 2016? What is the ratio intended to measure? Note 14. What are the estimated useful lives for recording depreciation? Why is land not listed in Note 14? reporting? Which depreciation method is used for tax purposes? Why might these methods be chosen? How does Target record repairs and maintenance expense? How does Target account for impairment of property and equipment? Were an impairments recorded for the year ended January 30, 2016? If so, what was the amount, and what were the reasons for the impairments? From Notes 15 and 16, what was the amount of intangible assets for the year ended January 30, 2016? Were any impairments related to intangible assets recorded for the year ended January 30, 2016? If so, what was the amount and, what were the reasons for the impairments? B7. B8. B9. APPENDIX D GAAP Comprehensive A14. Not exp of t Case Tar for Target Corporation prepares its financial statements axcording to US. GAAP T financial statements and disclosure aotes for the year ended January 30206gers in Connect. This material is also available under the Investoe Relations link at the ny's websise (www.target.com). This case addresses a variety of characteristies of finas statements prepared using U.S. GAAP. Questions are grouped in purts according to varios sections of the textbook. Al6. On A17. Dis the AIS, Di Part A: Financial Statements, Income Measurement and Current Assets A19. Di By what name does Target label its balance sheet? What amounts did Target report for the following items on January 30, 2016? a. Current assets b. Long-term assets c. Total assets d. Current liabilities e. Long-term liabilities f. Total liabilities g Total shareholders' equity what was Target's largest current asset? What was its largest current liability? Compute Target's current ratio and debe to equity ratio in 2016? Assuming Target's industry had an average current ratio of 1 0 and an averagedett to equity ratio of 2.5, comment on Target's liquidity and long-term solvency Why do you think Target has chosen to have its fiscal year end on January 30, as opposed to December 31? Regarding Target's audit report: a. Who is Target's auditor? b. Did Target receive a "clean" (unmodified) audit opinion? By what name does Target label its income statement? What amounts did Target report for the following items for the year ended January 30, 2016? Al. A2. th A20. D A21. D A22. W A3. A4. AS, A24. V A25. D A6. A26. V A27. I A7. A28. C A8. A9. A29 A30. a Sales b. Gross margin c. Earnings from continuing operations before income taxes d. Net earnings from continuing operations e. Net earnings A31 A10. What was Target's basic earnings per share for the year ended January 30, 2016 All. What additional items, if any, does Target report as part of its comprehensive A12. Does Target prepare the statement of cash flows using the direct method or the A13. Which is higher, net earnings or operating cash flows? Which line item is the income? indirect method? reason for this difference? Explain why Part B2. 4. Note 13 provides information on GAAP Comprehensive Case APPENDIX B Al expenses are for prepaid insurance and that insurance expense comprises $50 million of the $14.665 million of Selling. general and administrative expenses reported in the income statement for the year ended January 30, 2016. How much cash di Target pay for insurance coverage during the year? Prepare the adjusting entry Target would make to record all insurance expense for the year. What would be the effect on the income statement and balance sheet if Target didn't record an adjusting entry for prepaid expenses? Target's current assets. Assume all prepaid s What are the largest investing cash flow and the largest financing cash flow repored by the company for the year ended January 30, 2016 On what line of Target's income statement is revenue reported? What was the amount of revenue Target reported for the fiscal year ended January 30. 2016 Al A17. Disclosure Note 2 indicates that Target gencrally recoreds revenue in retal stores an the point of sale. Does that suggest that Target gencrally records revenue at a point in records revenue in retail stores at losure Note 2 indicates that customers ("guests") can return some merc within 90 days of purchase and can return other merchandise within a year of How are Target's revenue and net income affected by returns, given that it A19. Disclosure Note 2 indicates that Commissions carned on sales generated by leased does not know at the time a sale is made which items will be returned? departments are included within sales and were $37 million...in 2015. . ."Do you think it likely that Target is accounting for those sales as a principal or an agent? Explain. A20. Disclosure Note 2 discusses Target's accounting for gift card sales. Does Target A21. Disclosure Note 4 discussed how Target accounts for consideration received from A22. What is Target's policy for designating investmeats as cash equivalents recognize revenue when it sells a gift card to a customer? If not, when does it recognize revenue? Explain. vendors, which they call "vendor income." Does that consideration produce revenue for Target? Does that consideration produce revenue for Target's vendors? Explain A23. What is Target's balance of cash equivalents for the fiscal year ended January 30 2016? A24, Whatis Target's policy with respect to accounting for merchandise returns? has. (Hint, see Disclosure Notes 9. 11 and 13.) A26. What inventory method(s) does Target use to value its inventories? A27. In addition to the purchase price, what additional expenditures does the company A2. Calculate the gross profit ratio and the inventory turnover ratio for the fiscal year A29. What indexes does Target use to measure the LIFO provision? include in the initial cost of merchandise? ended January 30, 2016. Compare Target's ratios with the industry averages of 24.5% and 7.1 times. A30. Why does Target feel that the retail inventory method will result in inventory being A31. How does Target account for inventory when arrangements are made with vendors valued at the lower of cost or market? whereby Target does not purchase or pay for merchandise until the merchandise is ultimately sold to a customer? B: Property, Plant, and Equipment and Intangible Assets What categories of property, plant, equipment, and intangible assets does Target report in its January 30. 2016, balance sheet? How much cash was used in the fiscal year ended January 30, 2016, to purchase property and equipment? How does this compare with purchases in previous years? Bl, ENDIX B GAAP Comprehensive Case B3. Do you think a company like Target would have significant research and B4. What is Target's fixed-asset turnover ratio for the fiscal year ended January 30 B5. Compare the property and equipment listed in the balance sheet with the list in B6. Which depreciation method does Target use for property and equipment for financial development costs or capitalized interest related to self-constructed assets? Explain 2016? What is the ratio intended to measure? Note 14. What are the estimated useful lives for recording depreciation? Why is land not listed in Note 14? reporting? Which depreciation method is used for tax purposes? Why might these methods be chosen? How does Target record repairs and maintenance expense? How does Target account for impairment of property and equipment? Were an impairments recorded for the year ended January 30, 2016? If so, what was the amount, and what were the reasons for the impairments? From Notes 15 and 16, what was the amount of intangible assets for the year ended January 30, 2016? Were any impairments related to intangible assets recorded for the year ended January 30, 2016? If so, what was the amount and, what were the reasons for the impairments? B7. B8. B9