http://www.gapinc.com/content/attachments/gapinc/GPS_AR13.pdf 1. What is The GAP

Question

http://www.gapinc.com/content/attachments/gapinc/GPS_AR13.pdf

1. What is The GAPs fiscal year-end (in general, not just for each year). 2. List the types of stock The Gap is authorized to issue. 3. Briefly describe the different features of each type of stock. 4. How many shares of common stock are held in treasury at fiscal year-end 2013? 5. From the information provided in the St. of S/E, recreate the journal entry to record the reissuance of treasury stock pursuant to stock options and other stock award plans. 6. Prepare the journal entry to record the declaration and payment of cash dividends for fiscal year 2013 (assume declaration and payment occurs simultaneously). 7. Compute The Gap’s dividend payout ratio for fiscal year 2013. 8. Does The Gap have any potentially dilutive securities outstanding? If so, explain the effect of them on The Gap’s FY2013 EPS. 9. The Gap has stock option and stock award plans. How many do they have? 10. Are any of The Gap’s potential common shares anti-dilutive? State briefly how you know. 11. What is the general vesting period for the company’s stock options? 12. How many stock options were exercised during 2013? 13. Assume that a total of 12,000,000 options were granted at the beginning of fiscal year 2009. Each option granted employees the right to purchase one share of common stock at a price of $14 per share. The options have a 4-year service period. The FV of the options were determined to be $36M. Assume all options exercised during fiscal-year 2013 related to these options, and that they were exercised at year-end, 2013. Prepare the journal entries related to the stock options from 2009 to 2013. (If you do not know how many options were exercised in 2013, assume the amount was 6M for partial credit)

Explanation / Answer

1. GAP fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. The fiscal years ended February 1, 2014 (fiscal 2013) and January 28, 2012 (fiscal 2011) consisted of 52 weeks. The fiscal year ended February 2, 2013 (fiscal 2012) consisted of 53 weeks.

2. GAP is authorised to issue  2.3 billion shares of common stock,  60 million shares of Class B common stock, which is convertible into shares of common stock on a share-for-share basis. and  30 million shares of one or more series of preferred stock, which has a par value of $0.05 per share.

3. Transfer of the Class B shares is restricted. In addition, the holders of the Class B common stock have six votes per share on most matters and are entitled to a lower cash dividend, Preferred stock is stock which has prefrence over the other stock in dividend distribution or in liqudation, its voting rights will be as per issuance guidelines.

4. 660

6. Retained Earnings Dr 321 Mn

Shareholders Cr 321 Mn (Dividend declaration)

Shareholders Dr 321 Mn

Bank Cr 321 Mn (On payment)

7. 25%

8. Yes. Common stock equivalents consist of shares subject to share-based awards with exercise prices less than the average market price of our common stock for the period, to the extent their inclusion would be dilutive. Normal EPS is $2.78, diluted EPS is $ 2.74.

9. The 1996 Stock Option and Award Plan (the “1996 Plan” renamed as the “2006 Plan” and then to the “2011 Plan”) ,The 2002 Stock Option Plan (the “2002 Plan”) - discontinued ,

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