E5-34 THE GAP, INC.

Consolidated Statement of Earnings

Fiscal year endedJan. 31, 2015Feb. 1, 2014

Net sales................................................JAN:$16,435 FEB:$16,148

Cost of goods sold and occupancy expenses...................JAN:10,146 FEB:9,855

Gross profit.............................................JAN:.6,289 FEB:6,293

Operating expenses.......................................JAN:4,206 FEB:4,144

Operating income.........................................JAN:2,083 FEB:2,149

Interest expense..........................................JAN:75 FEB:61

Interest income...........................................JAN:(5) FEB:(5)

Income before income taxes ................................JAN:2,013 FEB:2,093

Income taxes ............................................JAN:751 FEB:813

Net earnings.............................................JAN:$1,262 FEB:$1,280

Common-Size and Pro Forma Income Statements

Refer to the income statements for

The Gap, Inc., presented in E5-34.

a. Prepare common-size income statements for fiscal years 2014 (ending January 31, 2015) and

2013 (ending February 1, 2014).

b. Prepare a pro forma income statement for the scal year 2015 (ending January 30, 2016),

based on the following assumptions:

Net sales total $15,000 million.

Cost of goods sold and occupancy expenses are 64% of sales.

Operating expenses total 26% of sales.

Interest income and interest expense are unchanged from the 2014 amounts.

The Gaps effective tax rate is 39%.

c. Given the Gaps business strategy, what are the factors that ultimately determine the accuracy

of the pro forma statement prepared in b?