Refer to the income statements for The Gap, Inc., presented in ES-34.

a. Prepare common-size income statements for fiscal years 2017 (ending February 3, 2018) and 2016 (ending January 28, 2017).

b. Prepare an income statement forecast for the fiscal year 2018 (ending February 2, 2019), based on the following assumptions:

• Net sales total $16,300 million.
• Cost of goods sold and occupancy expenses are 62% of sales.
• Operating expenses total 29% of sales.
• Interest income and interest expense are unchanged from the 2017 amounts.
• The Gap's effective tax rate on income before taxes is 25% in 2018.

c. Given the Gap's business strategy, what are the factors that ultimately determine the accuracy of the income statement forecast prepared in b?

Data from ES-34:    

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THE GAP, INC. Consolidated Statement of Earnings Fiscal year ended Feb. 3, 2018 Jan. 28, 2017 Net sales..... Cost of goods sold and occupancy expenses $15,855 $15,516 9,789 9,876 Gross profit... Operating expernses. 6,066 4,587 5,640 4,449 Operating income. Interest expense. 1,479 1,191 74 75 Interest income.. (19) (8) Income betore income taxes 1,424 1,124 ... Income taxes . 576 448 Net income.. 848 676 THE GAP, INC. Selected Balance Sheet Data Feb. 3, 2018 Jan. 28, 2017 Merchandise inventories... $1,997 $1,830 .... Total assets ... 7,989 7,610 Total stockholders' equity. 3,144 2,904