Question

The consolidated balance sheets of Gap Inc. included merchandise inventory in the amount of $1,610 as of January 30, 2016 (the end of fiscal year 2015) and $1,631 as of January 31, 2015 (the end of fiscal year 2014). Net sales were $14,567 and $14,680 at the end of fiscal years 2015 and 2014, respectively. Cost of goods sold and occupancy expenses were $9,270 and $8,773 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

      

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

Activity
Accounts
Statement(s)

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'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

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 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
	$
	$
	$

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:	%

Answer 1

1. Gap Inc. does not include accounts receivable on its balance sheet, most likely due to only cash sales, because in case of cash sales accounts receivable are not included in its balance sheet.

2.Entry of Sales-

Cash	$14,567
Sales		$14,567
(Recording of sales)

Analysis of the transaction to record sales-

Activity	To record in the credit side of Trading account & Cash column of balance sheet.
Accounts	In trading account it will be recoreded in the credit side and increase the gross profit by $14,567.
Balance sheet	-Cash column of balance sheet will be increased by $14,567 and -closing stock will be reduced with the cost of sales.
Statement(s)	-Income Statement-Due to revenue income will be increased by $14,567 -Cash flow statement-Cash inflow under operating activities- $14,567

Entry affect the accounting equation as follows -

Assets	=	Liabilities	+	Equity		Revenues	–	Expenses	=	Income
$14,567(cash)		0		$14,567(profit)		$14,567(sales)		0		$14,567

3. Sales return or return inward is a deduction would be made from gross sales to arrive at the amount of net sales reported.

4.Reconstruction of the Cost of Goods Sold section Cost of Goods Sold For the Year 2015-

Inventory in the begining	$1,631
+Purchase (Balance)	$9249
-Inventory in the end	$1,610
Cost of goods sold	$9,270

5. gross profit ratios-

Particulars	2014	2015
Sales	$14,680	$14,567
-Cost of goods sold	$8,773	$9,270
Gross profit	$5907	$5297

Gross profit ratio=(Gross profit/Sales)x100

Gap's 2015 gross profit ratio=($5297/$14,567)x100 =36.36%

Gap's 2014 gross profit ratio=($5907/$14,680)x100=40.24%

Thanks & all the best................