Chapter 4 Accounting Information Systems 203FINANCIAL ANALYSIS AND REPORTING CASES
The Gap Inc.is a global specialty retailer operating stores selling casual apparel, personal care,
and other accessories for men, women, and children under The Gap, Banana Republic, and Old
Navy brands. The Gap Inc. designs virtually all of its products, which are manufactured by in-
dependent sources and sold under The Gap’s name brands.
The following operating data (in millions) were adapted from the 2005 SEC 10-K filings of
The Gap Inc. for the years ending January 29, 2005, and January 31, 2004:2005 2004
Net sales $16,267 $15,854
Costs and expenses:
Cost of goods sold 9,886 9,885
Other expenses 4,509 4,285
Operating income $ 1,872 $ 1,684
Income taxes 722 653
Net income (loss) $ 1,150 $ 1,031
Depreciation and amortization $ 620 $ 675
Interest expense $ 167 $ 234- Compute EBITDA for 2005 and 2004.
- Compute the ratio of EBITDA to interest expense for 2005 and 2004. Round to one decimal
place. - Based upon (1) and (2), discuss the trends in EBITDA and the ratio of EBITDA to interest
expense. - Is EBITDA normally the same as the amount reported for net cash flows from operating
activities? Explain.
Case 4-1
The data needed to determine year-end adjustments are as follows:a. Fees revenue accrued at July 31 is $3,500.
b. Insurance expired during the year is $2,000.
c. Supplies on hand at July 31 are $350.
d. Depreciation of building for the year is $1,520.
e. Depreciation of equipment for the year is $2,160.
f. Accrued salaries and wages at July 31 are $2,800.
g. Unearned rent at July 31 is $500.Instructions
- Prepare the adjusting entries.
- Based upon (1), prepare an adjusted trial balance.
- Prepare an income statement for the year ended July 31, 2006.
- Prepare a retained earnings statement for the year ended July 31, 2006.
- Prepare a classified balance sheet as of July 31, 2006.
- Prepare the closing entries.
- Prepare a post-closing trial balance.