In: Accounting
I. Stockholders' Equity
A. Determine how Target Corporation got its initial financial start in terms of debt (liabilities) or equity (capital). Support your response.
B. Analyze the equity section of Target corporation's balance sheet as compared to its industry average. Rate Target corporation's performance against its competitors.
C. Review Target corporation's dividend policy and its history. Based on the information, discuss the trends over the past year.
II. Income Measurement/Revenue Recognition
A. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) came together on a unified project to outline the accounting principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. Research IAS-18, Revenue, and discuss how it would apply to Target corporation.
B. Review Target corporation's revenue over the past two years. Analyze the change in revenue (increase/decrease) and give the reasons for this change.
C. Reflecting upon Target corporation's balance sheet, identify the unearned revenue accounts listed. How does Target cororation handle the proper accounting treatment with regard to recognizing revenue from unearned revenue accounts?
Income statements
Period Ending |
1/28/2017 |
1/30/2016 |
|
Total Revenue |
$69,495,000 |
$73,785,000 |
|
Cost of Revenue |
$48,872,000 |
$51,997,000 |
|
Gross Profit |
$20,623,000 |
$21,788,000 |
|
Research and Development |
$0 |
$0 |
|
Sales, General and Admin. |
$13,356,000 |
$14,665,000 |
|
Non-Recurring Items |
$0 |
$0 |
|
Other Operating Items |
$2,298,000 |
$2,213,000 |
|
Operating Income |
$4,969,000 |
$4,910,000 |
|
Additional income/expense items |
$0 |
$620,000 |
|
Earnings Before Interest and Tax |
$4,969,000 |
$5,530,000 |
|
Interest Expense |
$1,004,000 |
$607,000 |
|
Earnings Before Tax |
$3,965,000 |
$4,923,000 |
|
Income Tax |
$1,296,000 |
$1,602,000 |
|
Minority Interest |
$0 |
$0 |
|
Equity Earnings/Loss Unconsolidated Subsidiary |
$0 |
$0 |
|
Net Income-Cont. Operations |
$2,669,000 |
$3,321,000 |
|
Net Income |
$2,737,000 |
$3,363,000 |
|
Net Income Applicable to Common Shareholders |
$2,737,000 |
$3,363,000 |
|
Balance Sheet |
|||
Current Assets |
|||
Cash and Cash Equivalents |
$2,512,000 |
$4,046,000 |
|
Short-Term Investments |
$0 |
$0 |
|
Net Receivables |
$0 |
$0 |
|
Inventory |
$8,309,000 |
$8,601,000 |
|
Other Current Assets |
$1,169,000 |
$1,483,000 |
|
Total Current Assets |
$11,990,000 |
$14,130,000 |
|
Long-Term Assets |
|||
Long-Term Investments |
$0 |
$0 |
|
Fixed Assets |
$24,658,000 |
$25,217,000 |
|
Goodwill |
$0 |
$0 |
|
Intangible Assets |
$0 |
$0 |
|
Other Assets |
$783,000 |
$915,000 |
|
Deferred Asset Charges |
$0 |
$0 |
|
Total Assets |
$37,431,000 |
$40,262,000 |
|
Current Liabilities |
|||
Accounts Payable |
$10,989,000 |
$11,654,000 |
|
Short-Term Debt / Current Portion of Long-Term Debt |
$1,718,000 |
$815,000 |
|
Other Current Liabilities |
$1,000 |
$153,000 |
|
Total Current Liabilities |
$12,708,000 |
$12,622,000 |
|
Long-Term Debt |
$11,031,000 |
$11,945,000 |
|
Other Liabilities |
$1,878,000 |
$1,915,000 |
|
Deferred Liability Charges |
$861,000 |
$823,000 |
|
Misc. Stocks |
$0 |
$0 |
|
Minority Interest |
$0 |
$0 |
|
Total Liabilities |
$26,478,000 |
$27,305,000 |
|
Stock-Holders Equity |
|||
Common Stocks |
$46,000 |
$50,000 |
|
Capital Surplus |
$5,661,000 |
$5,348,000 |
|
Retained Earnings |
$5,884,000 |
$8,188,000 |
|
Treasury Stock |
$0 |
$0 |
|
Other Equity |
($638,000) |
($629,000) |
|
Total Equity |
$10,953,000 |
$12,957,000 |
|
Total Liabilities & Equity |
$37,431,000 |
$40,262,000 |
I. Stockholders’ Equity
A.Target got its start as a single store started by George D.
Dayton in MN in 1902. The former banker wanted something different
and wanted a place people could have a one-stop shopping
experience. It started as Dayton Dry Goods Company but is now known
as Target Corporation. Dayton bought land using his own funds and
built a 6 story building on that land. Since he used his own funds,
his money became the company’s starting equity and he didn’t have
any liabilities. He convinced his first tenant to go into the
building in 1902 and the owner sold the store to Dayton. Dayton
controlled the company and started transferring ownership to his
son but still worked in the business. By 1920 the company had
become a multi-million dollar company and the entire building was
now full.
B.Target has a higher ROE than the industry average. This is
encouraging for the stock holders as it shows that company has good
profitability and their investment was a good thing. The P/E ratio
is quite a bit higher than the average. That means that investors
may think twice before placing money in the company due to those
numbers
That high number can mean one of two things for the company. 1).
Higher earnings are expected to come in the near future. 2). The
low industry average could be because the other companies are way
undervalued. .
Market Capitalization is below the industry average. This is either
because the number of investors is very high or because the stock
price is lower than the industry averages. The P/B ratio is higher
than the industry average. Since this ratio compares the stock’s
market value to the book value the higher number is a good thing.
The net to profit margin is higher than the industry average and
that show that the company is making a larger profit than some of
its competitors. The debt to equity ratio is far below the industry
average. This shows that it is not a risky investment for people to
get stock from the company.
C.Target has a 3.7% as on 2/13/2017 with declared dividend of $0.60 per share and 4.4% as on 8/14/2017 with a declared dividend of $0.62 per share and dividend yield 3.3 % in 2016 ,As you can see revenue has decline in 2017 as compared to 2016 target is doing its best to give back to its investors. Since the data breach in 2015, Target is still struggling to get its sales back up to where they once were. In 2016 with the 1% revenue drop from last year, they paid their dividends at $0.52 per share compared to the $0.43 per share they paid at the same time last year .Target does still have solid growth and pays its dividends on a regular basis which is good for investors. Acccording to data given as on 28/1/2017 ,Even with the 5.81% revenue drop from last year, they paid their dividends at $0.62 per share compared to the $0.60 per share they paid at the same time last year. That being said, Target doesn’t want its investors to expect huge growth in their dividends yet.
Target pays its dividends every three months. The last year it paid the following dividends to its shareholders On 6/10/2016, 3/10/2016, 12/10/2015, and 9/10/2015 the shareholders were all paid $0.56 per share. With a payment 0.60 per share as on declaration date of 1/12/2017
Note:As you have given balance sheet last date is 28/1/2017
,
i havent quoted that the dividend data paid after that you can
include that data if you want
Income Statement/Revenue Recognition
A.IAS-18 Revenue gives companies and other organizations rules and procedures that must be used and followed when recognizing revenue from sales, services, interests, royalties, and dividends. This will mean Target will need to dive into their revenue and make sure they are buying what they can actually sell. It will mean changes on the balance sheet and income statement. One problem they could run into is that IFRS doesn’t clearly show the difference between certain types of revenue and Target currently uses LIFO which is not prohibited by IFRS.
B.
Looking at the sales from 2016 – 2017 there is a small
percentage of change even though the monetary value seems high. For
example from 2016 to 2017 there is a 5.81% Fall in sales and a
6.10% fall in COGS. Looking at the Gross Income it is evident that
Target is able to keep their yearly sales mostly stable and
continue to make money.
Some of the reasons for these small changes are due to Targets
competitive pricing. Over the years they continue to price match
with their competitors, especially their largest competitor,
Walmart. This can help get consumers in the door and allow them to
buy more once they are there. Another thing that helps them keep
consumers in the door is that they offer a lot of different
products at different price points.
C.After Some Research it is found that target issues gift cards.
An example for unearned revenue for Target would be the sale of a Target gift card. When customer A comes in and buys a $250 gift card for customer B, then customer A pays Target and that cash must be recorded. A month later customer B comes in and uses the gift card and now Target can record it as sales revenue. If they use the whole amount here is the journal entry.
Jan. 15 Cash $250
Unearned revenue $250
Feb. 15 Unearned revenue $250
Sales revenue $250
If customer B comes in and uses $100 on Feb. 15 and then the rest on March 1st, here is the journal entry.
Jan. 15 Cash $250
Unearned revenue $250
Feb. 15 Unearned revenue $100
Sales revenue $100
March 1 Unearned revenue $150
Sales revenue $150
Target does list unearned revenue on the balance sheet because
each revenue must match an expense. Even though they haven’t
actually sold merchandise yet, it is recorded as a liability since
it is an obligation that the company still has to deliver the goods
that were paid for.
You haven’t given the complete data but you can look in company’s
foot note to see the disclosure about the liability
mentioned.
Go through that , you will find it