Gap Inc.'s Sales, Cost of Goods Sold, and Gross Profit

The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,596 as of January 30, 2016 (the end of fiscal year 2015) and $1,614 as of January 31, 2015 (the end of fiscal year 2014). Net sales were $14,566 and $14,655 at the end of fiscal years 2015 and 2014, respectively. Cost of goods sold and occupancy expenses were $9,298 and $8,760 at the end of fiscal years 2015 and 2014, respectively. All amounts are from Gap Inc.'s 2015 Form 10-K.

Required:

1. Gap Inc. does not include accounts receivable on its balance sheet, most likely due to

• A prohibition by its bankers to extend credit to its customers.
• Credit card sales and a lack of sales on credit.
• Rich clients who always pay cash.
• Sales Returns and Allowances
• Very few credit transactions which are not reported due to materiality principle.

2. Identify and analyze the transaction to record sales during the year ended January 30, 2016.

Activity Financing

• Investing
• Operating

Accounts

• Cash Increase, Sales Increase
• Cash Increase, Sales Decrease
• Cash Decrease, Sales Increase
• Cash Decrease, Sales Decrease

• Statement(s) Balance Sheet only
• Balance Sheet and Income Statement
• Income Statement only

How does this entry affect the accounting equation?

If a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter "0". If the effect is negative, use the minus sign.

Enter amounts in millions of dollars. For example, 12,400,000,000 would be entered as 12,400.

Balance Sheet Income Statement

Stockholders'

NetAssets = Liabilities + Equity Revenues - Expenses = Income

fill in the blank _(___)_ fill in the blank_(__)_ fill in the blank __(__)__ fill in the blank _(__)___

-Accounts Payable -Accounts Payable

-Accounts Receivable Accounts Receivable

-Cash Cash

-Inventory Inventory

-Purchases Purchases

-Sales Sales

3. Gap Inc. 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?

• Cost of goods sold
• Purchase discounts
• Purchases
• Sales returns and allowances

4. Reconstruct the Cost of Goods Sold section of Gap Inc.'s 2015 income statement. Enter amounts in millions of dollars. For example, 12,400,000,000 would be entered as 12,400.

Gap Inc.

Cost of Goods Sold

For the Year 2015

1a Cost of goods sold 1/31/15

• Merchandise inventory, 1/31/15 1b $________________
• Merchandise inventory, 1/30/16
• Sales for the year ended 1/30/16
• Work in process inventory, 1/31/15

2a Cost of goods purchased

• Cost of goods returned 2b____________
• Cost of goods sold
• Cost of overhead
• Cost of revenue

3a Cost of goods available for sale

• Cost of goods sold 3b $_________
• Net income
• Net profit
• Total revenue

4a Merchandise inventory, 1/31/15

• Merchandise inventory, 1/30/16
• Purchase discounts 4b___________
• Returns and allowances
• Sales discounts

5a Cost of goods purchased

• Cost of goods returned
• Cost of goods sold 5b_$___________
• Cost of sales discounts
• Cost of sales returns

5. Calculate the gross profit ratios for Gap Inc. for 2015 and 2014. If required, round the percentage to one decimal place.

Gap's 2015 gross profit ratio: _______%

Gap's 2014 gross profit ratio: ______%

Is the company's performance improving?