Financial information for American Eagle is presented in Appendix A at the end of the book.

Required:
1. In the summary of significant accounting policies, what is American Eagle’s procedure in accounting for inventory?
2. For the most recent year, what is the amount of inventory in the balance sheet? What does this amount represent?
3. American Eagle refers to its cost of goods sold using a different name. What is it?
4. For the most recent year, what is the amount of cost of goods sold in the income statement? What does this amount represent?
5. Calculate American Eagle’s inventory turnover ratio and average days in inventory for the most recent year.
6. Calculate American Eagle’s gross profit ratio for each of the three years. Do you notice any trend?
7. For the most recent year, calculate American Eagle’s ratio of operating expenses to net sales.