Question

II. Income Measurement/Revenue Recognition A. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board...

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 corporation 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

Homework Answers

Answer #1

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

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