Walgreen’s Sales, Cost of Goods Sold, and Gross Profi t The following information was summarized from the consolidated balance sheets of Walgreen Co. and Subsidiaries as of August 31, 2008 and 2007 and the consolidated statements of income for the years ended August 31, 2008 and 2007.

(in millions) 2008 2007 Accounts receivable, net $ 2,527 $ 2,237 Cost of sales 42,391 38,518 Inventories 7,249 6,790 Net sales 59,034 53,762 Required 1. Identify and analyze the transactions related to the collection of accounts receivable and sales during 2008. Assume that all of Walgreen’s sales are on account.

2. Walgreen Co. sets forth net sales but not gross sales on its income statement. What type(s) of deduction(s) would be made from gross sales to arrive at the amount of net sales reported? Why might the company decide not to report the amount(s) of the deduction(s) separately?

3. Reconstruct the Cost of Goods Sold section of Walgreen’s 2008 income statement.

4. Calculate the gross profi t ratios for Walgreen Co. for 2008 and 2007 and comment on the change noted, if any. Is the company’s performance improving? What factors might have caused the change in the gross profi t ratio?

AppendixLO1