Let’s look at Target some more. Think about Target. Think about accountants reporting what Target has, where it gets or receives its money, and what it has been doing to create value. Is Target earning net income or loss? What resources does Target need to operate? Think about the business of Target.
Return to Target’s web site at www.target.com. Next, scroll to the bottom of the page and look for the heading “about target” and click on “company information.” Now click on “Investors” and click on “Annual Reports.” Finally, look for the link to the 201 0 annual report and click on it. A lot of information is contained in Target’s financial statements which are located in the annual report. Look through the pages of the annual report. On page 33 of the annual report, you’ll find Target’s income statement for the year ending January 29, 2011 (called the Consolidated Statement of Operations). On page 34, you’ll find Target’s balance sheet as of January 29, 2011 (called the Consolidated Statement of Financial Position). After the income statement and balance sheet are other reports and explanations of the numbers on the reports.
Now answer the following questions:
Look at the 201 0 income statement and balance sheet of Target. How would the following transactions affect the financial statements?
a. What would happen to Target’s balance sheet if it borrowed $50 million of cash from a bank?
b. What would happen to Target’s balance sheet if it built a new store costing $50 million in cash?
c. What would happen to Target’s income statement and balance sheet if it had a big sale, increasing net income by $10 billion which all ended up as cash?
d. What would happen to Target’s income statement and balance sheet if it hired more employees? The salaries of these employees cost Target $1 billion paid in cash. The extra employees did not create any extra net income.