Chapter 2, Problem 1CCTC

Continuing Cases

Target Case

• LO2–4, LO2–8

Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations link at the company's website (www.target.com).

Required:

1. Refer to Target’s balance sheet for the years ended January 30, 2016 and January 31, 2015. Based on the amounts reported for accumulated depreciation, and assuming no depreciable assets were sold during the year, prepare an adjusting entry to record Target’s depreciation for the year.

2. Refer to Target’s statement of cash flows for the year ended January 30, 2016. Assuming your answer to Requirement 1 includes all depreciation expense recognized during the year, how much amortization expense was recognized during the year?

3. Note 13 provides information on Target’s current assets. Assume all prepaid expenses are for prepaid insurance and that insurance expense comprises $50 million of the $14,665 million of Selling, general and administrative expenses reported in the income statement for the year ended January 30, 2016. How much cash did Target pay for insurance coverage during the year? Prepare the adjusting entry Target would make to record all insurance expense for the year. What would be the effect on the income statement and balance sheet if Target didn’t record an adjusting entry for prepaid expenses?