Problem Gap Inc. is a specialty retailer of clothing, accessories, and personal
ID: 2813491 • Letter: P
Question
Problem Gap Inc. is a specialty retailer of clothing, accessories, and personal care products for men, women, children, and babies. Products are sold under Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. Actual financial data and nomenclature from its January 29, 2011, annual report are given next (S in millions) $14,664 Earnings before income taxes ? Net sales Gross proft Operating income Operating expenses Cost of goods sold Interest income 778 5.889 Income taxes 1.968 Retained earnings ? Beginning of year 10,815 End of year 14 Dividends declared 252 Net eanings 1. Compute the missing values Prepare a multiple-step statement of income for the year ended January 29, 2011 2. Compute the ending balance in Retained Earnings as of January 29 2011 3 Compute the percentage of gross profit on sales and the percentage of net earnings on sales. 4. The average common stocknolders' equity for the year was $4 485.5 million. What was the return on average common stockholders' equity?Explanation / Answer
a. 1. Multiple-step income statement
net sale = 14664
less: cost of goods sold = 8775
Gross profit = 5889
less: operating expense = 3921
Operating income = 1968
add: interest income = 14
Earning before income tax = 1982
less: income tax = 778
Net earnings = 1204
2. Beginning Retained earnings balance = 10815
Add: net earnings = 1204
less: dividend = 252
Ending Retained earnings balance = 11767
3. Gross profit on sale = gross profit / sale
= 5889 / 14664
= 40.16%
net earnings on sale = net earnings / sale
= 1204 / 14664
= 8.21%
4. Return on average common stockholder's equity = net earnings / average common stockholder's equity
= 1204 / 4485.5
= 26.84%
b. Multiple-step income statement
sale = 2800
less: cost of goods sold = 1800
Gross profit = 1000
less: operating expenses
utilities 110
wage 400
depreciation 160 = 670
Operating income = 330
add: interest revenue 28
rent revenue 80 = 108
Earning before interest and tax = 222
less: interest expense = 138
Earning before tax = 84
less: income tax = 33.6
Net income = $50.4
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