Analysis of Inventory Disclosure

Foot Locker, Inc. is a specialty athletic retailer that operates approximately 3,220 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. Through its Foot Locker, Kids Foot Locker, Lay Foot Locker, Champs Sports, Footaction, Runner Point, Sidestep, and SIX:02 retail stores, as well as its direct-to-customer channels, including Eastbya.com, the Company is a leading provider of athletic footwear and apparel.

We selected disclosures related to Foot Locker Companys inventory for the fiscal year ended January 28, 2017 (see numbers below) . Use these disclosures to answer the following questions:

a. What percentage of inventory at the end of 2016 is accounted for under each cost-flow assumption that Foot Locker uses?

b. Why would Foot Locker use LIFO for domestic U.S. inventories but FIFO for international inventories?

c. How does Foot Locker apply the retail inventory method?

d. What types of costs are included in the cost of sales?

e. Why does Foot Locker not report a LIFO reserve?

f. What is Foot Lockers gross profit percentage in 2014, 2015 and 2016?

g. What is Foot Lockers inventory turnover ratio and days inventory on hand in 2016?

Sales (in millions) $7,766 (2016), 7,412 (2015), 7,151 (2014)

Cost of Sales (in millions) $5,130 (2016), $4,907 (2015), $4,777 (2014)

LIFO Inventories (in millions) $861 (2016), $847 (2015)

FIFO Inventories (in millions) $446 (2016) , $438 (2015)

Total Merchandise Inventories $1,307 (2016) , $,1,285 (2015)

From Financial Statement Notes: NOTE 1: Summary of Significant Accounting Policies (excerpt) Merchandise Inventories and Cost of Sales Merchandise inventories for the Company's Athletic Stores are valued at the lower of cost or market using the retail inventory method. Cost for retail stores is determined on the last-in, first-out ("LIFO") basis for domestic inventories and on the first-in, first-out ("FIFO") basis for international inventories. Merchandise inventories of the Direct-to-Customers business are valued at the lower of cost or market using weighted-average cost, which approximates FIFO. The retail inventory method is common ly used by retail companies to value inventories at cost and calculate gross margins due to its practicality. Under the retail inventory method, cost is determined by applying a cost-to-retail percentage across groupings of similar items, known as departments. The cost- to-retail percentage is applied to ending inventory at its current owned retail valuation to determine the cost of ending inventory on a department basis. The Company provides reserves based on current sell- ing prices when the inventory has not been marked down to market. Transportation, distribution center, and sourcing costs are capitalized in merchandise inventories. The Company expenses the freight associated with transfers between its store locations in the period incurred. The Company maintains an accrual for shrinkage based on historical rates Cost of sales is composed of the cost of merchandise, as well as occupancy, buyers' compensation, and shipping and handling costs. The cost of merchandise is recorded net of amounts received from suppliers for damaged product returns, markdown allowances, and volume rebates, as well as coop- erative advertising reimbursements received in excess of specific, incremental advertising expenses Occupancy includes the amortization of amounts received from landlords for tenant improvements