Refer to the financial statements of American Eagle Outfitters given in Appendix
ID: 2576502 • Letter: R
Question
Refer to the financial statements of American Eagle Outfitters given in Appendix B. (Fiscal year ending 2015)
Link: http://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/libby_9e/Libby9e_AppB.pdf
Required:
1. How much inventory does the company hold at the end of the most recent year? (Enter your answer in thousands.)
2. Estimate the amount of merchandise that the company purchased during the current year. (Hint: Use the cost of goods sold equation.) (Enter your answer in thousands.)
3. What method does the company use to determine the cost of its inventory?
4. Compute the inventory turnover ratio for the current year. (Round your intermediate calculations to the nearest whole dollar and your final answer to 2 decimal places.)
a. FIFO b. LIFO c. Weighted AverageExplanation / Answer
Answer for question no.1:
Inventory held by the company for the year ended January 31,2015 is $278,972,000.
Answer for question no.2:
Cost of goods sold= Opening stock+Purchases - Closing stock
Purchases=Cost of goods sold+Closing stock - Opening stock
Opening stock=$291,541,000.
Cost of goods sold=$2,128,193,000.
Substituting the values in the formula
Purchases=$2,128,193,000.+$278,972,000 -$291,541,000
=$211,562,4000.
Answer for question no.3:
From notes to consolidated financial statements, from Merchandise inventory section, it is stated that Weighted average cost is used for valuation of inventory.Therefore, answer is option c.
Answer for question no.4:
Formula for inventory turnover ratio=Cost of goods sold/Average inventory.
susbtituting the values in the formula=$2,128,193,000./(($291,541,000+$278,972,000.)/2)
=7.4606 times.