Target adopted the new leasing standard for the year ended February 2, 2019, using the modified retrospective approach outlined in ASC Topic 842. All questions relate to the year ended February 2, 2019 (fiscal 2018) unless stated otherwise. The supplemental information for the fiscal 2018 statement of cash flows reports that $130 of leased assets were obtained in exchange for new finance lease liabilities, and $246 of leased assets were obtained in exchange for new operating lease liabilities. Presented below is information from Target Corporation's Form 10-K, Note 18, for the year ended February 2, 2019. February 2, February 3, Leases (millions) Classification 2019 2018 Assets Operating Operating Lease Assets $1,965 $1,884 Finance Buildings and Improvements, net of 872 Accumulated Depreciation Total leased assets $2.837 $2,720 836 $ 166 $ 148 53 80 Liabilities Current Operating Accrued and Other Current Liabilities Finance Current Portion of Long-term Debt and Other Borrowings Noncurrent Operating Noncurrent Operating Lease Liabilities Finance Long-term Debt and Other Borrowings Total lease liabilities Lease Cost (millions) Classification Operating lease cost) SG&A Expenses Finance lease cost Amortization of leased assets Depreciation and Amortization) Interest on lease liabilities Net Interest Expense Sublease income Other Revenue Net lease cost 2,004 968 $3.191 1.924 885 $3,037 2018 $251 2017 $221 2016 $199 65 42 (11) $347 63 42 (9) $317 87 36 (7) $315 Maturity of Lease Liabilities (millions) Operating Leases/a) Finance Leases) Total 2018 $251 2017 $221 2016 $199 65 42 (11) $347 63 42 (9) $317 87 36 (7) $315 Lease Cost (millions) Classification Operating lease cost SG&A Expenses Finance lease cost Amortization of leased assets Depreciation and Amortization) Interest on lease liabilities Net Interest Expense Sublease incomerc) Other Revenue Net lease cost Maturity of Lease Liabilities (millions) Operating Leases/a) 2019 $ 245 2020 238 2021 232 2022 226 2023 217 After 2023 1.746 Total lease payments $ A Less: Interest Present value of lease liabilities $ B Finance Leases $ 98 98 98 99 Total 343 336 330 325 311 2.720 $4,365 94 974 $D F $ E February 2, 2019 February 3, 2018 Lease Term and Discount Rate Weighted average remaining lease term (years) February 2, 2019 February 3, 2018 Lease Term and Discount Rate Weighted average remaining lease term (years) Operating leases Finance leases Weighted average discount rate Operating leases Finance leases 14.2 15.4 15.2 15.4 3.91% 4.64% 3.88% 4.64% 2018 2017 2016 Other Information (millions) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases $231 45 80 $198 42 45 $188 36 94 Required: All questions relate to fiscal 2018 unless stated otherwise. 1. Solve for the unknowns (A through F). 2. Explain how adopting ASC Topic 842 changed Target's balance sheet at February 4, 2018 (the first day of the 2018 fiscal year). 3. Explain why the amount of Operating Lease Assets differs from the amount of total Operating lease liabilities. 4. Explain why the amount of Buildings and Improvements, net of Accumulated Depreciation differs from the total amount of Finance lease liabilities. 5. Show how the fiscal 2018 income statement would change if the operating leases were treated as finance leases. 6. Show how the fiscal 2018 statement of cash flows would change if the operating leases were treated as finance leases. 7. Show how the February 2, 2019, balance sheet would change if the operating leases were treated as finance leases