Question: Target Corporation operates in a single business
Target Corporation operates in a single business segment that is designed to enable guests to purchase products seamlessly in stores, online or through mobile devices. Most of its operations are in the United States. Walmart is engaged in the operation of retail, wholesale, and other units located throughout the United States, Africa, Argentina, Brazil, Canada, Central America, Chile, China, India, Japan, Mexico, and the United Kingdom. The Company’s operations are conducted in three reportable segments: Walmart U.S., Walmart International, and Sam’s Club. Information taken from both firms’ fiscal 2014 annual reports to shareholders follows. The fiscal 2014 years end in January 2015. 
Property and equipment 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 assured at the date the leasehold improvements are acquired. . . . For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred. Facility preopening costs, including supplies and payroll, are expensed as incurred. Estimated useful lives by major asset category are as follows: 
Estimated useful lives for financial statement purposes are as follows: 
Required: Assume a 35% tax rate. 1. Estimate the average useful life of each firm’s long-lived assets as of January 31, 2015. 2. Calculate a revised estimate of Walmart’s depreciation expense for the year ended January 31, 2015 using the estimated average useful life of Target’s assets. Use this amount to recalculate Walmart’s income before taxes and income from continuing operations for the year ended January 31, 2015. 3. Calculate a revised estimate of Target’s depreciation expense for the year ended January 31, 015 using the estimated average useful life of Walmart’s assets. Use this amount to recalculate Target’s earnings before income taxes and net earnings from continuing operations for the year ended January 31, 2015. 4. Why might a financial analyst want to make adjustments in requirements 2 and 3? 5. What factors will affect the reliability and accuracy of the adjustments performed in requirements 2 and 3?
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Target Corporation Property and Equipment January 31, February 1, ($ in millions) 2015 2014 $ 6,127 26,614 5,346 2,553 $ 6,143 25,984 5,199 2,395 Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction in progress Accumulated depreciation Property and equipment-net 424 757 (14,066) $26,412 (15,106) $ 25,958 Asset Life (In Years) Buildings and improvements Fixtures and equipment Computer hardware and software 8-39 2-15 2-7 Selected Income Statement Information Years Ended January 31 February 1, ($ in millions) 2015 2014 Depreciation and amortization Earnings before income taxes Net earnings from continuing operations $2,129 3,653 2,449 $1,996 4,121 2,214 Wal-Mart Stores, Inc. Property and Equipment January 31, January 31, ($ in millions) 2015 2014 $ 26,261 97,496 45,044 2,807 5,787 177,395 Land $ 26,184 Buildings and improvements Fixtures and equipment Transportation equipment Property under capital lease Property and equipment Accumulated depreciation Property and equipment, net 95,488 42,971 2,785 5,661 173,089 (63,115) $114,280 (57,725) $115,364 Asset Life (in Years) Buildings and improvements Fixtures and equipment Transportation equipment 3-40 2-30 3-15 Selected Income Statement Information Years Ended January 31, January 31, ($ in millions) 2015 2015 Depreciation and amortization Income from continuing operations $ 9,100 24,799 $ 8,800 24,656 before income taxes Income from continuing operations 16,814 16,551
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