Question

The Gap, Inc., is a global specialty retailer of casual wear products for women, men, and children under the Gap, Banana Republic, Old Navy, Forth & Towne, and Piperline brands. As of February 3, 2007, the Company operated 3,131 stores across the globe, as well as online. The following is a note from a recent annual report:
(1) Summary of Significant Accounting Policies—
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over their estimated lives or the related assets, or where applicable, the terms of the respective leases, whichever is shorter.
The components of cost at the end of the current and prior years are as follows (dollars in thousands):


Required:
1. Assuming that The Gap, Inc., did not have any asset impairment write-offs and did not sell any property, plant, and equipment in the current year, what was the amount of depreciation expense recorded in the current year?
2. Assume that The Gap, Inc., failed to record depreciation in the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios:
a. Earnings per share
b. Fixed asset turnover
c. Financial leverage
d. Return onequity


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  • CreatedJuly 26, 2012
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