The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,620,000,000 as of

Question:

The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,620,000,000 as of January 29, 2011 (the end of fiscal year 2010) and $1,477,000,000 as of January 30, 2010 (the end of fiscal year 2009). Net sales were $14,664,000,000 and $14,197,000,000 at the end of fiscal years 2010 and 2009, respectively. Cost of goods sold and occupancy expenses were $8,775,000,000 and $8,473,000,000 at the end of fiscal years 2010 and 2009, respectively.

Required

1. Unlike most other merchandisers, Gap Inc. doesn't include accounts receivable on its balance sheet. Why doesn't Gap Inc.'s balance sheet include this account?

2. Identify and analyze the transaction to record sales during the year ended January 29, 2011.

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? Why might the company decide not to report the amount(s) of the deduction(s) separately?

4. Reconstruct the Cost of Goods Sold section of Gap Inc.'s 2010 income statement.

5. Calculate the gross profit ratios for Gap Inc. for 2010 and 2009 and comment on any change noted. Is the company's performance improving? Explain. What factors might have caused the change in the gross profit ratio?

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