Assignment task: Analyzing PPE Accounts and Recording PPE Transactions, Including Discontinued Operations
The 2019 and 2018 income statements and balance sheets (asset section only) for Target Corporation (the Company) follow, along with its note disclosure describing Target's accounting for property and equipment. Target's statement of cash flows for fiscal 2019 (fiscal year ended February 1, 2020) reported capital expenditures of $3,027 million and disposal proceeds for property and equipment of $63 million. No gain or loss was reported on property and equipment disposals. In addition, Target acquired property and equipment through non-cash acquisitions not reported on the statement of cash flows.
| Consolidated Statements of Operations |
|
|
| ($ millions) |
2019 |
2018 |
| Sales |
$77,130 |
$74,433 |
| Other revenue |
982 |
923 |
| Total revenues |
78,112 |
75,356 |
| Cost of sales |
54,864 |
53,299 |
| Selling, general, and administrative expenses |
16,233 |
15,723 |
| Depreciation and amortization |
|
|
| (exclusive of depreciation included in cost of sales) |
2,357 |
2,224 |
| Operating income |
4,658 |
4,110 |
| Net interest expense |
477 |
461 |
| Net other (income)/expense |
-9 |
-27 |
| Earnings from continuing operations before income taxes |
4,190 |
3,676 |
| Provision for income taxes |
921 |
746 |
| Net earnings from continuing operations |
3,269 |
2,930 |
| Discontinued operations, net of tax |
12 |
7 |
| Net earnings |
$3,281 |
$2,937 |
| Consolidated Statements of Financial Position (Asset Section Only) |
|
|
| ($ millions) |
February 1, 2020 |
February 2, 2019 |
| Assets |
|
|
| Cash and cash equivalents |
$2,577 |
$1,556 |
| Inventory |
8,992 |
9,497 |
| Other current assets |
1,333 |
1,466 |
| Total current assets |
12,902 |
12,519 |
| Property and equipment |
|
|
| Land |
6,036 |
6,064 |
| Buildings and improvements |
30,603 |
29,240 |
| Fixtures and equipment |
6,083 |
5,912 |
| Computer hardware and software |
2,692 |
2,544 |
| Construction-in-progress |
533 |
460 |
| Accumulated depreciation |
-19,664 |
-18,687 |
| Property and equipment, net |
26,283 |
25,533 |
| Operating lease assets |
2,236 |
1,965 |
| Other noncurrent assets |
1,358 |
1,273 |
| Total assets |
$42,779 |
$41,290 |
Property and Equipment:
Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably certain at the date the leasehold improvements are acquired. Depreciation expense for 2019, 2018, and 2017 was $2,591 million, $2,460 million, and $2,462 million, respectively, including depreciation expense included in Cost of Sales. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility pre-opening costs, including supplies and payroll, are expensed as incurred.
We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances-such as a decision to relocate or close a store or distribution center, discontinue a project, or significant software changes-indicate that the asset's carrying value may not be recoverable. We recognized impairment losses of $23 million, $92 million, and $91 million during 2019, 2018, and 2017, respectively . . . Impairments are recorded in Selling, General, and Administrative Expenses.
REQUIRED:
Q1. Prepare journal entries to record the following for fiscal 2019:
i. Depreciation expense
ii. Capital expenditures
iii. Disposal of property, plant, and equipment
iv. Impairments and write-downs (Assume that impairments and write-downs reduce the property and equipment account, rather than increasing accumulated depreciation.)
Q2. Estimate the amount of property and equipment that was acquired, if any, through non-cash transactions