Target Corporation operates in a single business segment that is designed to enable guests to purchase products seamlessly in stores, online, or through mobile devices. Most of its opera tions are in the United States. Walmart is engaged in the operation of retail, wholesale, and other units located throughout the United States, Africa, Argentina, Brazil, Canada, Central America, Chile, China, India, Japan, Mexico, and the United Kingdom. The Company's operations are conducted in three reportable segments: Walmart U.S., Walmart International, and Sam's Club. Information taken from both firms' fiscal 2014 annual reports to shareholders follows. The fiscal 2014 years end in January 2015. Target Corporation Property and Equipment $ in millions Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction in progress Accumulated depreciation Property and equipment-net January 31. 2015 $ 6,127 26.614 5.346 2553 424 (15.106) $25.958 February 1 2014 $ 6,143 25.984 5.199 2.395 757 (14,066) $26.412 Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the begin ning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired.... For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are capensod as incurred. Facility pre opening costs, including supplies and payroll, are expensed as incurred. Estimated useful lives by major asset category are as follows Asset Life (in Years Buildings and improvements Fixtures and equipment 2-15 Computer hardware and software Selected Income Statement Information $ in millions) Depreciation and amortization Earnings before income taxes Net earnings from continuing operations Source: The Corp.2014 port Years Ended January 31, February 1. 2015 2014 $2,129 $1.996 3.653 4.121 2.449 January 31, 2014 Walmart Stores, Inc Property and Equipment ($ in millions) Land Buildings and improvements Fixtures and equipment Transportation equipment Property under capital lease Property and equipment Accumulated depreciation Property and equipment, net January 31, 2015 $ 26,261 97.496 45.044 2.807 5.787 177395 (63,115) $114.280 $ 26,184 95.488 42.971 2.785 5.661 173.089 (57,725) ST15:364 Estimated useful lives for financial statement purposes are as follows: Asset Life (in Years) Buildings and improvements Fixtures and equipment 2-30 Transportation equipment 3-15 Selected Income Statement Information Years Ended January 31, January 31. ($ in millions) 2015 2015 Depreciation and amortization $ 9,100 $ 8.800 Income from continuing operations before income taxes 24,799 24,656 Income from continuing operations 16,814 16.551 Source: Walmart Stores, Inc. 2014 annual report Required: Assume a 35% tax rate. 1. Estimate the average useful life of each firm's long-lived assets as of January 31, 2015. 2. Calculate a revised estimate of Walmart's depreciation expense for the year ended January 31, 2015, using the estimated average useful life of Target's assets. Use this amount to recalculate Walmart's income before taxes and income from continuing operations for the year ended January 31, 2015. 3. Calculate a revised estimate of Target's depreciation expense for the year ended January 31, 2015, using the estimated average useful life of Walmart's assets. Use this amount to recal- culate Target's carnings before income taxes and net earnings from continuing operations for the year ended January 31, 2015. 4. Why might a financial analyst want to make adjustments in requirements 2 and 3? 5. What factors will affect the reliability and accuracy of the adjustments performed in requirements 2 and 32
