Internet Exercise: Gap The Gap, Inc., was founded in 1969 by Donald and Doris Fisher in San Francisco, California, with a single store and a handful of employees. Today, the company is one of the worlds largest specialty retailers with three of the most recognized brands in the apparel industry (Gap, Banana Republic, and Old Navy). The Gap, Inc., has more than 134,000 employees supporting about 3,100 stores in the United States, United Kingdom, Canada, France, and Japan. Go to www.gapinc.com. IE5-1. Click on Investors, followed by Financials, and then Annual Reports and Proxy. Download the latest annual report.

1. Which inventory cost flow assumption is used to measure the cost of inventory? Does The Gap, Inc., value inventory at the lower-of-cost-or-market value? If so, how is market value determined? Does this policy comply with GAAP? 2. For the three most recent years, list the amounts reported for net sales and gross profit. Is net sales increasing or decreasing? Is gross profit increasing or decreasing? Are these trends favorable or unfavorable? Explain your answer. 3. Using the financial statements, calculate the inventory turnover ratio for the three most recent years. (You will need inventory values from the 2007 and 2006 10Ks or annual reports, avail- able on the Web site.) Did the inventory turnover ratio increase or decrease? What does this measure? What does The Gap, Inc., do to identify inventory that is slow moving and how is this inventory treated? 4. For cost of goods sold, The Gap, Inc., uses Cost of Goods Sold and Occupancy Expenses. What is included in this amount?

IE5-2. Go back to The Gap, Inc., homepage and click on Social Responsibility. 1. Does The Gap, Inc., do anything to ensure its garment workers are treated fairly? If so, why is this important for the company to do? Go back to About Gap Inc. 2. Click on How Our Clothes Are Made. List and briefly describe The Gap, Inc.