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intermediate accounting volume 1
Intermediate Accounting 11th International Edition David Spiceland, Mark W. Nelson, Wayne M. Thomas - Solutions
From Notes 11 and 12, were any impairments related to intangible assets recorded for the year ended February 1, 2020? If so, what was the amount and what were the reasons for the impairments?
In Note 10, does Target report any impairment of property and equipment for the year ended February 1, 2020? If so, what was the amount and what were the reasons for the impairments?
In Note 10, how does Target record repairs and maintenance expense?
In Note 10, which depreciation method does Target use for property and equipment for financial reporting? Which depreciation method is used for tax purposes? Why might these methods be chosen?
Compare the property and equipment listed in the balance sheet with the list in Note 10. What are the estimated useful lives for recording depreciation? Is land listed in Note 10 (yes/no)?
Does Target include any intangible assets in total assets (yes/no)? (Hint:see Notes 11 and 12.)
What is Target’s fixed-asset turnover ratio for the fiscal year ended February 1, 2020?What is the ratio intended to measure?
Do you think a company like Target would have more research and development costs or more advertising costs? Explain.
What amount ($ in millions) of cash was used in the fiscal year ended February 1, 2020, to purchase property and equipment? Is this an increase or decrease compared to the previous year?
What amount ($ in millions) does Target report for net property and equipment for the year ended February 1, 2020? What is the largest category of property and equipment reported on the face of the balance sheet?
Target has agreements with certain vendors whereby Target does not purchase or pay for merchandise until the merchandise is ultimately sold to a customer. See Revenue Note 2. Are sales and cost of sales of this inventory included in Target’s income statement? Is unsold inventory at the end of the
Does Target adjust the retail value of inventory for permanent markups or permanent markdowns to effectively report inventory at the lower of cost or market?
What retail indices (internally measured or externally measured) does Target use to measure the LIFO provision?
Calculate the gross profit ratio and the inventory turnover ratio for the fiscal year ended February 1, 2020. Compare Target’s ratios with the industry averages of 24.5% and 7.1 times. Determine whether Target’s ratios indicate the company is more/less profitable and sells its inventory
In addition to the purchase price, what additional expenditures does the company include in the initial cost of inventory?
Does Target use average cost, FIFO, or LIFO as its inventory cost flow assumption?
Does Target have accounts receivable? Speculate as to why it has the balance that it has. (Hint: See Disclosure Notes 2, 7, and 9.)
In what note does Target disclose its policy with respect to accounting for merchandise returns?
What is Target’s balance of cash equivalents for the fiscal year ended February 1, 2020?
In what note does Target disclose its policy for designating investments as cash equivalents?
Disclosure Note 4 discussed how Target accounts for consideration received from vendors, which they call “vendor income.” Does that consideration produce revenue for Target? Does that consideration produce revenue for Target’s vendors? Explain.
Disclosure Note 2 discusses Target’s accounting for gift card sales. Does Target recognize revenue when it sells a gift card to a customer? If not, when does it recognize revenue? Explain.
Disclosure Note 2 indicates that customers (“guests”) can return some merchandise within 90 days of purchase and can return other merchandise within a year of purchase. How are Target’s revenue and net income affected by returns, given that it does not know at the time a sale is made which
Disclosure Note 2 indicates that Target generally records revenue in retail stores at the point of sale. Does that suggest that Target generally records revenue at a point in time or over a period of time? Explain.
What was the amount of revenue Target reported in its income statement for the fiscal year ended February 1, 2020?
Does Target report its lease liabilities for the total amount of the lease payments or the present value of those lease payments?
What are the weighted-average discount rates used to calculate the present value of each type of lease?
Refer to Disclosure Note 17 following Target’s financial statements. Find the schedule showing the lease payments over the next five years and beyond. What are the total lease payments for operating leases and finance leases? What are the present values of those lease payments for each type of
What are the largest investing cash flow and the largest financing cash flow reported by the company for the year ended February 1, 2020?
Which is higher, net earnings or operating cash flows? Which line item is the biggest reason for this difference? Explain why.
Does Target prepare the statement of cash flows using the direct method or the indirect method?
Does Target report any items as part of its comprehensive income? If so, what are they.
What amounts did Target report for the following items for the year ended February 1, 2020?a. Salesb. Cost of goods sold (labeled cost of sales)c. Earnings from continuing operations before income taxesd. Net earnings from continuing operationse. Net earnings
By what name does Target label its income statement?
Assuming Target’s industry had an average current ratio of 1.0 and an average debt to equity ratio of 2.5, comment on Target’s liquidity and long-term solvency.
Compute Target’s current ratio and debt to equity ratio in 2020?
What was Target’s largest current asset? What was its largest current liability?
What amounts did Target report for the following items on February 1, 2020?a. Current assetsb. Long-term assetsc. Total assetsd. Current liabilitiese. Long-term liabilitiesf. Total liabilities g. Total shareholders’ equity
By what name does Target label its balance sheet?
a. By how much did retained earnings increase/decrease in the most recent year compared to the previous year?b. Target reduces retained earnings for “Dividends declared” and “Repurchase of stock.” These two amounts totaled $2,865 million in the most recent year. Using this amount and your
Note 9 provides information on Target’s current assets. Assume all prepaid expenses are for prepaid insurance and that insurance expense comprises $50 million of the$16,233 million of selling, general, and administrative expenses reported in the income statement for the year ended February 1,
a. Find sales revenue (labeled “Sales”) in the income statement (labeled“Consolidated Statement of Operations”) and record sales for the year, assuming all sales were for cash.b. Find total cost of goods sold (labeled “Cost of sales”) in the income statement and record the journal entry
What amount did Target report for total assets, total liabilities, and total shareholders’ equity (labeled “Shareholders’ investment”) in the most recent year?Show that the basic accounting equation remains in balance.
Regarding Target’s audit report:a. Who is Target’s auditor?b. Did Target receive a “clean” (unmodified) audit opinion?c. How many critical audit matters were discussed in Target’s audit report?
What is Target’s fiscal year-end? Why do you think Target chose that year-end?
What was Target’s basic earnings per share for the year ended February 1, 2020?
What amounts did Target report for the following items for the year ended February 1, 2020?a. Total revenuesb. Income from current operationsc. Net income or net lossd. Total assetse. Total equity
Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2019, are available in Connect. This material is also available under the
Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 1, 2020, are available in Connect. This material is also available under the Investor Relations link at the company’s website
A conceptual question in accounting for derivatives is this: Should gains and losses on a hedge instrument be recorded as they occur, or should they be recorded to coincide (match) with income effects of the item being hedged?ABI Wholesalers plans to issue long-term notes in May that will replace
The following is an excerpt from a disclosure note of Johnson & Johnson:6. Fair Value Measurements (in part)As of January 3, 2021, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $652 million after-tax. The Company expects that substantially
CMOS Chips is hedging a 20-year, $10 million, 7% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 7% fixed interest rate on a notional amount of $10 million and to pay interest based on a
[This is a variation of PA-1, modified to consider the extended method demonstrated in Illustration A–5.]On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8% fixedrate note with annual interest payments. The principal of the note is due on December
On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8%fixed-rate note with annual interest payments. The principal of the note is due on December 31, 2025.• Avalanche wanted to hedge against declines in general interest rates, so it also entered into
On January 1, 2024, JPS Industries borrowed $300,000 from Austin Bank by issuing a three-year, floating rate note based on SOFR, with interest payable semiannually on June 30 and December of each year.• JPS entered into a three-year interest rate swap agreement on January 1, 2024, and designated
Cleveland Company is a U.S. firm with a U.S. dollar functional currency that manufactures copper-related products. It forecasts that it will sell 5,000 feet of copper tubing to one of its largest customers at a price of¥50,000,000. Although this sale has not been firmly committed, Cleveland
Snackums, Inc., purchases wheat for use in its food manufacturing process. Snackums operates in a highly competitive industry and is rarely able to increase its sales price.• On January 1, 2024, Snackums estimates that it only has enough wheat inventory to meet its manufacturing needs for the
Arlington Steel Company is a producer of raw steel and steel-related products.• On January 3, 2025, Arlington enters into a firm commitment to purchase 10,000 tons of iron ore pellets from a supplier to satisfy spring production demands. The purchase is to be at a fixed price of $63 per ton on
On January 1, 2024, Oriole Company purchased $500,000 of Nest Corporation’s five-year, 4% notes at par, with interest receivable semiannually. The company classified the investment as available-for-sale.• To hedge the risk that general interest rates will increase and the fair market value of
[This is a variation of E A–5, modified to consider fair value change unrelated to hedged risk.]On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.• LLB entered into a two-year interest rate swap agreement on
[This is a variation of E A–2, modified to consider the extended method.]On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.• LLB entered into a two-year interest rate swap agreement on January 1, 2024, and
[This is a variation of E A–2, modified to consider fair value change unrelated to hedged risk.]LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.• LLB entered into a two-year interest rate swap agreement on January 1, 2024, and
On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.• LLB entered into a two-year interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge. Its intent was to hedge the risk that
Indicate (by abbreviation) the type of hedge each activity described below would represent.Hedge Type FV Fair value hedge CF Cash flow hedge FC Foreign currency hedge N Would not qualify as a hedge Activity _____ 1. An options contract to hedge possible future price changes of inventory._____ 2. A
When is a gain or a loss from a cash flow hedge reported in earnings?
How are derivatives reported on the balance sheet? Why?
What is the effect on interest of an interest rate swap?
What is a futures contract?
Hines Moving Company held a fixed-rate debt of $2 million. The company wanted to hedge its fair value exposure with an interest rate swap. However, the only notional available at the time, on the type of swap it desired, was $2.5 million. What will be the effect of any gain or loss on the $500,000
Should gains and losses on a fair value hedge be recorded as they occur, or should they be recorded to coincide with losses and gains on the item being hedged?
Some financial instruments are called derivatives. Why?
U.S. GAAP designates cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows. Dividends paid to shareholders are classified as financing cash flows. How are these cash flows reported under IFRS?
Where can we find authoritative guidance for the statement of cash flows under IFRS?
Compare the manner in which investing activities are reported on a statement of cash flows prepared by the direct method and by the indirect method.
Why does the FASB recommend the direct method over the indirect method?
When using the indirect method of determining net cash flows from operating activities, how are revenues and expenses reported on the statement of cash flows if their cash effects are identical to the amounts reported in the income statement?
When using the indirect method of determining net cash flows from operating activities, how is depreciation expense reported? Why? What other expenses are reported in a like manner?
When determining the amount of cash paid for income taxes, what would be indicated by an increase in the deferred income tax liability account?
When an asset is sold at a gain, why is the gain not reported as a cash inflow from operating activities?
Given sales revenue of $200,000, how can it be determined whether or not $200,000 cash was received from customers?
What is the purpose of the “changes” columns of a spreadsheet to prepare a statement of cash flows?
Perhaps the most noteworthy item reported on an income statement is net income—the amount by which revenues exceed expenses. The most noteworthy item reported on a statement of cash flows is not the amount of net cash flows. Explain.
How would the acquisition of a building be reported on a statement of cash flows if purchased by issuing a mortgage note payable in addition to a significant cash down payment?
Does the statement of cash flows report only transactions that cause an increase or a decrease in cash? Explain.
The issuance of stock and the issuance of bonds are reported as financing activities. Are payments of dividends to shareholders and payments of interest to bondholders also reported as financing activities? Explain.
Investing activities include the acquisition and disposition of assets. Provide three specific examples. Identify two exceptions.
Do cash flows from operating activities report all the elements of the income statement on a cash basis? Explain.
What are the differences between cash flows from operating activities and the elements of an income statement?
Transactions that involve merely purchases or sales of cash equivalents generally are not reported in a statement of cash flows. Describe an exception to this generalization. What is the essential characteristic of the transaction that qualifies as an exception?
Is an investment in Treasury bills always classified as a cash equivalent? Explain.
The statement of cash flows provides a list of all the cash inflows and cash outflows during the reporting period.To make the list more informative, the cash flows are classified according to the nature of the activities that create the cash flows. What are the three primary classifications?
Effects of all cash flows affect the balances of various accounts reported in the balance sheet. Also, the activities that cause some of these cash flows are reported in the income statement. What, then, is the need for an additional financial statement that reports cash flows?
With r IFRS egard to the correction of accounting errors, what is the difference between U.S. GAAP and IFRS?
Suppose the error described in the previous question is not discovered until six years later. What action will the discovery of this error require?
What action is required when it is discovered that a five-year insurance premium payment of $50,000 two years ago was debited to insurance expense? (Ignore taxes.)
If it is discovered that an extraordinary repair in the previous year was incorrectly debited to repair expense, how will retained earnings be reported in the current year’s statement of shareholders’ equity?
If merchandise inventory is understated at the end of 2023, and the error is not discovered, how will net income be affected in 2024?
Describe the process of correcting an error when it’s discovered in a subsequent reporting period.
The issuance of FASB guidance regarding consolidation of all majority-owned subsidiaries required Ford Motors to include a previously unconsolidated finance subsidiary as part of the reporting entity. How did Ford report the change?
For financial reporting, a reporting entity can be a single company, or it can be a group of companies that reports a single set of financial statements. When changes occur that cause the financial statements to be those of a different reporting entity, we account for the situation as a change in
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