Reference no: EM132852682

Problem - 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 $1,889,000,000 as of January 31, 2015 (the end of fiscal year 2014) and $1,928,000,000 as of February 1, 2014 (the end of fiscal year 2013). Net sales were $16,435,000,000 and $16,148,000,000 for fiscal years 2014 and 2013, respectively. Cost of goods sold and occupancy expenses were $10,146,000,000 and $9,855,000,000 for fiscal years 2014 and 2013, respectively. All amounts are from Gap Inc.'s 2014 Form 10-K.

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. Prepare the appropriate journal entry to record sales during the year ended January 31, 2015.

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?

4. Reconstruct the Cost of Goods Sold section of Gap Inc.'s 2014 income statement.

5. Calculate the gross profit ratios for Gap Inc. for 2014 and 2013 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?