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CP3-2
Group 7Heather Broadwell
Jimmy HaBrittany Spangler
William QuanLinda S. Yin
Question 1What is the company’s revenue recognition
policy?
AE’s Revenue Recognition Policy:
See page C-26 (appendix) for notes to AE’s financial statements Store Sales:
AE records revenue upon the purchase of merchandise by customers.
AE’s Revenue Recognition Policy:
See page C-26 (appendix) for notes to AE’s financial statements Store Sales:
AE records revenue upon the purchase of merchandise by customers.
E-Commerce:
AE records revenue at the time the goods are shipped.
AE’s Revenue Recognition Policy:
See page C-26 (appendix) for notes to AE’s financial statements Store Sales:
AE records revenue upon the purchase of merchandise by customers.
E-Commerce:
AE records revenue at the time the goods are shipped.
Gift Cards:
AE does not record revenue on the purchase of gift cards. A current liability is recorded upon purchase and revenue is recognized when the gift card is redeemed for merchandise.
AE’s Revenue Recognition Policy:
See page C-26 (appendix) for notes to AE’s financial statements Store Sales:
AE records revenue upon the purchase of merchandise by customers.
E-Commerce:
AE records revenue at the time the goods are shipped.
Gift Cards:
AE does not record revenue on the purchase of gift cards. A current liability is recorded upon purchase and revenue is recognized when the gift card is redeemed for merchandise.
Sales to Off-Price Retailers:
These sell-offs are typically sold below cost and the proceeds are reflected in the cost of sales.
Question 2Assuming that $50MM of cost of sales was
due to non-inventory purchase expenses (occupancy and warehousing costs), how much inventory did the company buy during the year?
AE Inventory:See page C-12 & C-13 (appendix) for AE’s balance sheet & income
statement
(Figures in thousands)
Inventory
Bal. @ 1/31/04 $120,586
(b) ? (a) ?
Bal. @ 1/29/05 $137,991
AE Inventory:See page C-12 & C-13 (appendix) for AE’s balance sheet & income
statement
(Figures in thousands)
Inventory
Bal. @ 1/31/04 $120,586
(b) ? (a) $953,433
Bal. @ 1/29/05 $137,991
(a) Total Cost of Sales (for the year ended 1/29/05) $1,003,433
Less: Non-Inventory Purchase Expense - $50,000
Cost of Sales $953,433
Expense (+E, -SE) …….$953,433
Inventory (-A) ………………….$953,433 (a)
AE Inventory:See page C-12 & C-13 (appendix) for AE’s balance sheet & income
statement
(Figures in thousands)
Inventory
Bal. @ 1/31/04 $120,586
(b) $970,838 (a) $953,433
Bal. @ 1/29/05 $137,991
(b) $120,586 + (b) - $953,433 = $137,991
(b) - $832,847 = $137,991
(b) = $970,838
AE purchased $970,838 in inventory.
Question 3 Calculate general, administrative and selling
expenses as a percentage of sales for the years ended 1/29/05 and 1/31/04. By what percentage did it increase or decrease from fiscal 2003 to 2004?
General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands)
See page C-13 (Appendix) for AE’s Income Statement
For the year-ended 1/29/05:446,829 / 1,881,241 = 23.75%
General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands)
See page C-13 (Appendix) for AE’s Income Statement
For the year-ended 1/29/05:446,829 / 1,881,241 = 23.75%
For the year-ended 1/31/04:356,261 / 1,435,436 = 24.82%
General, Admin. & Selling Expenses as a Percentage of Sales:(figures in thousands)
See page C-13 (Appendix) for AE’s Income Statement
For the year-ended 1/29/05:446,829 / 1,881,241 = 23.75%
For the year-ended 1/31/04:356,261 / 1,435,436 = 24.82%
% decrease from fiscal year 2003 to 2004:(23.75% - 24.82%) / 24.82% = -
4.31%
Question 4Compute the company’s total asset
turnover for the year-ended 1/29/05 and explain it’s meaning.
AE’s Total Asset Turnover(figures in thousands)
See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement
Total Asset Turnover = Sales Revenue / Average Total Assets
AE’s Total Asset Turnover(figures in thousands)
See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement
Total Asset Turnover = Sales Revenue / Average Total Assets
Sales Revenue (for the year-ended 1/29/05) = $1,881,241
Total Assets as of 1/31/04 = $932,414
Total Assets as of 1/29/05 = $1,293,659
Average Total Assets = $1,113,036.5
AE’s Total Asset Turnover(figures in thousands)
See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement
Total Asset Turnover = Sales Revenue / Average Total Assets
Sales Revenue (for the year-ended 1/29/05) = $1,881,241
Total Assets as of 1/31/04 = $932,414
Total Assets as of 1/29/05 = $1,293,659
Average Total Assets = $1,113,036.5
AE’s Total Asset Turnover for the year-ended 1/29/05 =$1,881,241 / $1,113,036.5 = 1.69
AE’s Total Asset Turnover(figures in thousands)
See page C-12 & C-13 (appendix) for AE’s balance sheet and income statement
Total Asset Turnover = Sales Revenue / Average Total Assets
Sales Revenue (for the year-ended 1/29/05) = $1,881,241
Total Assets as of 1/31/04 = $932,414
Total Assets as of 1/29/05 = $1,293,659
Average Total Assets = $1,113,036.5
AE’s Total Asset Turnover for the year-ended 1/29/05 =$1,881,241 / $1,113,036.5 = 1.69
The total asset turnover ratio measures the sales generated per dollar of assets. The higher the ratio, the more efficient the company is at managing assets. For fiscal 2004, AE generated $1.69 in sales revenue for every dollar of assets.
