Yelena Zhivago operates a clothing retail operation. She purchases all mer-

(SO 4, 5, 6) chandise inventory on credit and uses a perpetual inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005, 2006, 2007, and 2008.

_2005 _ _2006 _ _ 2007 — _2 008 Inventory (ending) $13,000 $ 11,300 $ 16,400 $ 12,200 Accounts payable (ending) 17,000 Sales 225,700 227,600 224,000 Purchases of merchandise inventory on account 141,000 150,700 136,000 Cash payments to suppliers 135,000 159,000 127,000 Instructions

(a) Calculate cost of goods sold for each of the 2006, 2007, and 2008 fiscal years.

(b) Calculate the gross profit for each of the 2006, 2007, and 2008 fiscal years.

(c) Calculate the ending balance of accounts payable for each of the 2006, 2007, and 2008 fiscal years.

(d) The vice-presidents of sales, marketing, production, and finance are discussing the company’s results with the CEO. They note that sales declined in fiscal 2008. They wonder whether that means that profitability, as measured by the gross profit rate, necessarily also declined. Explain, calculating the gross profit rate for each fiscal year to help support your answer.