P5 51 Revenue Recognition and Sales Allowances Target Corporation reported the following on its income statement The revenue recognition footnote from the 10 K for the year ended February 2, 2019, includes the following We record almost all retail store revenues at the point of sale Digital channel sales include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store Total revenues do not include sales tax because we are a pass through conduit for collecting and remitting sales taxes Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales and our expectations of future returns Revenue from gift card sales is recognized upon gift card redemption Our gift cards do not expire Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as breakage Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions Guests receive a 5 percent discount on virtually all purchases and receive free shipping at Target com when they use their REDcard This discount is included as a sales reduction in our Consolidated Statements of Operations and was $953 million, $933 million, and $899 million in the fiscal years ended February 2019, 2018, and 2017 respectively Required Use the financial statement effects template to record retail cash sales of $1,000 in a state with a sales tax rate of 8 For this question, assume 10 of all merchandise sold is returned within 90 days Use the financial statement effects template to record the following transaction On March 4, an internet customer places an order for $2,000 and pays online with a credit card (which is equivalent to cash for accounting purposes) The goods are shipped from the warehouse on March 6, and FedEx confirms delivery on March 7 Ignore shipping costs, sales tax, and returns Use the financial statement effects template to record the gift card activity during the fiscal year ended February 2, 2019 Ignore sales tax and returns Details are as follows Determine the amount of revenue Target collected from customers who used their loyalty card (REDcard) for each of the fiscal years reported above What proportion of total revenues come from REDcard customers each year Does the loyalty program seem to be working Explain For 12 Months Ended ($ millions) Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Total revenue Cost of sales $75,356 53,299 $72,714 51,125 $70,271 49,145 $ millions Gift card liability, February 3, 2018 Gift cards issued during current period but not redeemed Revenue recognized from beginning liability Gift card liability, February 2, 2019 $727 645 (532) $840

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P5-51. Revenue Recognition and Sales Allowances Target Corporation reported the following on its income statement. The revenue recognition footnote from the 10-K for the year

P5-51. Revenue Recognition and Sales Allowances

Target Corporation reported the following on its income statement.

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The revenue recognition footnote from the 10-K for the year ended February 2, 2019, includes the following.

We record almost all retail store revenues at the point of sale.
Digital channel sales include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store.
Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales taxes.
Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales and our expectations of future returns.
Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as breakage. Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions.
Guests receive a 5 percent discount on virtually all purchases and receive free shipping at Target.com when they use their REDcard. This discount is included as a sales reduction in our Consolidated Statements of Operations and was $953 million, $933 million, and $899 million in the fiscal years ended February 2019, 2018, and 2017 respectively

Required

Use the financial statement effects template to record retail cash sales of $1,000 in a state with a sales-tax rate of 8%. For this question, assume 10% of all merchandise sold is returned within 90 days.
Use the financial statement effects template to record the following transaction: On March 4, an internet customer places an order for $2,000 and pays online with a credit card (which is equivalent to cash for accounting purposes). The goods are shipped from the warehouse on March 6, and FedEx confirms delivery on March 7. Ignore shipping costs, sales tax, and returns.
Use the financial statement effects template to record the gift card activity during the fiscal year ended February 2, 2019. Ignore sales tax and returns. Details are as follows.
Determine the amount of revenue Target collected from customers who used their loyalty card (REDcard) for each of the fiscal years reported above. What proportion of total revenues come from REDcard customers each year? Does the loyalty program seem to be working? Explain.

For 12 Months Ended ($ millions) Feb. 2, 2019 Feb. 3, 2018 Jan. 28, 2017 Total revenue Cost of sales. $75,356 53,299 $72,714 51,125 $70,271 49,145 $ millions Gift card liability, February 3, 2018. ... Gift cards issued during current period but not redeemed. Revenue recognized from beginning liability Gift card liability, February 2, 2019.... $727 645 (532) $840