Question

Target Case (Static) [LO6-2, 6-6, 6-7]

Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 3, 2018, are available here. This material also is available under the Investor Relations link at the company’s website (www.target.com).

Required:
1. On what line of Target’s income statement is revenue reported? What was the amount of revenue Target reported for the fiscal year ended February 3, 2018?



2. 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.



3. 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 is Target’s revenue and net income affected by returns, given that it does not know at the time a sale is made which items will be returned?



4. Disclosure Note 2 indicates that “Commissions earned on sales generated by leased departments are included within sales and were $44 million . . . in 2017.” Do you think it likely that Target is accounting for those sales as a principal or an agent? Explain.



5. 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.



6. 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.

Answer 1

Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 3, 2018, are available here.