The 2010 and 2009 income statements and balance sheets (asset section only) for
ID: 2419715 • Letter: T
Question
The 2010 and 2009 income statements and balance sheets (asset section only) for Target Corpora-tion follow, along with its footnote describing Target’s accounting for property and equipment. Target’s cash flow statement for fiscal 2010 reported capital expenditures of $2,129 million and disposal proceeds for property and equipment of $69 million. No gain or loss was reported on property and equipment disposals. In addition, Target acquired property and equipment through non-cash acquisitions not reported on the statement of cash flows.
Required: Prepare journal entries to record the following for 2010:
i. Depreciation expense
ii. Capital expenditures
iii. Disposal of property, plant and equipment
iv. Repair and maintenance costs
v. Impairments and write-downs (Assume that impairments and write-downs reduce the property and equipment account, rather than increasing accumulated depreciation.)
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning 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. Depreciation expense for 2010, 2009 and 2008 was $2,060 million, $1,999 million and $1,804 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred and were $726 million in 2010, $632 million in 2009 and$609 million in 2008. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.
Estimated Useful LivesLife (in years)
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8-39
Fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-15
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-7
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. Impairments of $28 million in 2010, $49 million in 2009 and $2 million in 2008 were recorded as a result of the reviews performed. Additionally, due to project scope changes, we wrote off capitalized construction in progress costs of $6 million in 2010, $37 million in 2009 and $26 million in 2008.
Consolidated Statements of Operations
(millions, except per share data)2010 2009
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,786
$63,435
Credit card revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,604
1,922
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,390
65,357
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,725
44,062
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
13,469
13,078
Credit card expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
860
1,521
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,084
2,023
Earnings before interest expense and income taxes . . . . . . . . . . . . . . . .
5,252
4,673
Net interest expense
Nonrecourse debt collateralized by credit card receivables. . . . . . . . .
83
97
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
677
707
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(3)
Net interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
757
801
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,495
3,872
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,575
1,384
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 2,920 $2,488
Consolidated Statements of Financial Position (Asset Section Only)
(millions, except footnotes)
January 29, 2011
January 30,2010
Assets
Cash and cash equivalents, including marketable
securities of $1,129 and $1,617 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,712
$ 2,200
Credit card receivables, net of allowance of $690 and $1,016. . . . . . . 6,153
6,966
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,596
7,179
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,752
2,079
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,213
18,424
Property and equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,928
5,793
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,081
22,152
Fixtures and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,939
4,743
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,533
2,575
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
567
502
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,555)
(10,485)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,493
25,280
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
999
829
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,705 $44,533
Explanation / Answer
Answer for forecasted income statement:
Consolidated forecasted balancesheet:
Working notes:
For depreciation it is mentioned that capital expenditure is going to increase by 3.2% of sales. Therefore PPE cost for 2012 and 2013 would be as follows:
For long term and current portion of long term debt:
Calculation of retained earnings:
Plug is calculated as follows:
Consolidated Statements of Operations For fiscal year ended (millions) Jan. 29, 2011 2012 Est. 2013 Est. Sales 65786 68417 71154 Credit card revenues 1604 1668 1735 Total revenues (A) 67390 70085 72889 Cost of sales (b) 45725 48709 50658 Selling, general and administrative expenses (C ) 13469 14025 14587 Credit card expenses (D) 860 894 930 Depreciation and amortization (E ) 2084 2149 2276 Earnings before interest expense and income taxes F= A-B-C-D-E 5252 4308 4566 Net interest expense Nonrecourse debt collaterized by credit card receivables (G) 83 83 83 Other interest expense (H) 677 677 677 Interest income (I) 3 3 3 Net interest expense J=G+H-I 757 757 757 Earnings before income taxes K=F-J 4495 3551 3809 Provisions for income taxes L=K*35% 1575 1243 1333 Net earnings M=K-L 2920 2308 2476Related Questions
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