During 2007, Foot Locker, Inc., had numerous accruals and deferrals. As a new member of Foot Locker, Inc.’s accounting staff, it is your job to explain the effects of accruals and deferrals on net income for 2007.
The accrual and deferral data follow, along with questions that Foot Locker, Inc.’s stockholders have raised (all amounts in millions):
1. Examine Footnote 8 to Foot Lockers consolidated financial statements (Other Current Assets) in Appendix B. Notice that included in this total are net receivables. Ending net receivables for 2006 (beginning balance of 2007) were $59 million. Ending net receivables for 2007 were $50 million. Which of these amounts did Foot Locker, Inc., earn in 2006? Which amount is included in Foot Locker, Inc.’s 2007 net income?
2. In Footnote 8, examine the line entitled prepaid rent. The beginning balance is $62 million and the ending balance is $65 million. Which of these amounts impacted Foot Locker, Inc.’s 2007 net income? Which amount impacted Foot Locker, Inc.’s 2008 net income?
3. Examine Footnote 9 (Property and Equipment, Net). Notice that accumulated depreciation stood at $870 million at the end of 2006 and at $903 million at year end 2007. Assume that depreciation expense for 2007 was $100. Explain what must have happened to account for the remainder of the change in the accumulated depreciation account during 2007. (Challenge)
4. Examine Footnote 13 (Accrued and Other Liabilities). Foot Locker, Inc., reports an account titled Customer deposits. The attached footnote states that customer deposits include unredeemed gift cards and certificates, merchandise credits, and deferred revenue related to undelivered merchandise, including layaway sales. This account carried credit balances of $33 million at the end of 2006 and $34 million at the end of 2007.
What type of account is Customer deposits? Make a single journal entry to show how this account could have increased its balance during 2007. Then explain the event in your own words.