Refer to the financial statements and the notes to consolidated financial statements for Aritzia Inc. for the year ended February 25, 2018, which are reproduced in Appendix A.

Instructions

Use these statements to answer the following questions.

a. Refer to Note 1 of Aritzia’s financial statements and describe the company’s operations. Is Aritzia a service company or a merchandiser?

b. Aritzia does not disclose in its financial statements or notes if it uses a periodic or perpetual inventory system. Why do you think that readers of the financial statements do not need to know that information? What inventory system do you think it uses and why?

c. Refer to the consolidated statement of operations, which is the same as an income statement. Does Aritzia use a single-step or multiple-step income statement format? How can you tell?

d. What non-operating revenues and non-operating expenses are included in Aritzia’s consolidated statement of operations?

e. Gross profit margin and profit margin for 2018 were calculated in Illustrations 5.19 and 5.20, respectively. Calculate Aritzia’s gross profit margin and profit margin for the year ended February 26, 2017. Comment on any changes in profitability. What does a negative profit margin indicate?

f. Refer to the consolidated statements of financial position, which is the same as a balance sheet. What amount does the company report for Inventory as at February 25, 2018?

g. Refer to Note 5 of the consolidated financial statements, which provides additional detail for the inventory reported on the consolidated statements of financial position. List the amounts that are reported for each type of inventory. What does “Finished goods in transit” mean?

h. Refer to Note 2 Summary of Significant Accounting Policies and find the paragraph titled “Revenue Recognition.” When does Aritzia recognize revenue and in what amount? Do you think the company uses the contract-based approach or the earnings approach for revenue recognition? Explain.